Afghanistan: Provincial Reconstruction Teams

Lord Astor of Hever: asked Her Majesty's Government:
	Whether they are confident that NATO will meet its deadline of 28–29 June for putting in place five provincial reconstruction teams in Afghanistan.

Baroness Symons of Vernham Dean: My Lords, the Secretary-General has expressed a wish to see five provincial reconstruction teams under ISAF command by the time of the Istanbul summit. That is not a deadline, but part of a NATO plan to extend its stabilisation mission in Afghanistan, which also includes providing support for elections in due course. We and NATO colleagues are working hard on the objectives. We are confident that further contributions from allies will be forthcoming before the Istanbul summit.

Lord Astor of Hever: My Lords, I am grateful to the Minister for that reply. ISAF has now been waiting for months for promised extra troops and equipment from alliance members, and NATO's credibility is very much threatened. What can the Government do to ensure that pledges from NATO allies to supply those vital resources are quickly fulfilled to deploy the necessary security for the September elections?

Baroness Symons of Vernham Dean: My Lords, we are talking to our NATO colleagues about the pledges that may be forthcoming at the Istanbul summit. A number of countries have indicated a willingness to contribute more by way of personnel or hardware towards the extension of the PRTs in Afghanistan. I am not in a position to make announcements on that at the moment; I hope that they will be forthcoming by the time of the summit. As the countries concerned have not made the announcements themselves yet, it would not be proper for me to make such an announcement now.

The Earl of Sandwich: My Lords, will the noble Baroness accept that the aid agencies are still in considerable confusion about the role of the provincial reconstruction teams, and particularly about whether they are to do humanitarian work? There is concern that they should protect aid workers. Will she confirm that that is one of the objectives?

Baroness Symons of Vernham Dean: My Lords, we have tried to be clear on the role of the provincial reconstruction teams. Representatives from the Foreign Office, the MoD and DfID have presented what I understand that they called a PRT roadshow in Oslo, Stockholm, Helsinki, Berlin, Rome, NATO headquarters in Brussels, and Ottawa to try to explain how the teams will work. They have also briefed officials from Hungary, Poland, Turkey, New Zealand and Bulgaria in London.
	There are very difficult problems around security. The noble Earl asks his question on a day when we have heard of the very tragic deaths of 13 Chinese reconstruction workers in Afghanistan. The recent killings of Médecins sans Frontières aid workers have also been a cause of great concern. When in place, the PRTs are meant to provide stability for the country. That must include providing protection for those engaged in reconstruction that will be vital for the future. I hope that the way in which British officials have tried to give briefing, in both London and elsewhere, indicates to noble Lords the seriousness with which we take our role on the reconstruction teams.

Lord Hurd of Westwell: My Lords, there is obviously a link between the rather serious security situation that the noble Baroness has illustrated and the prospect for elections, which are crucial politically. I noticed that, in her Answer, she talked about elections in due course, whereas my noble friend recalled—I think correctly—that the policy decision was to have elections in September. Can she explain that? Is the decision for September still a clear one?

Baroness Symons of Vernham Dean: My Lords, as I understand it, there has been no change. On 28 March, President Karzai announced that the joint presidential and parliamentary elections would indeed be held in September 2004. Electoral registration began in eight regional centres in December and moved into rural areas in February. By 25 May, there were 720 operational registration sites in 31 provinces, and more than 2.5 million voters have been registered. The process has been delayed, but the delay has been because of lack of funds rather than due to concerns about security. I acknowledge that security of course remains an obstacle and, if the situation worsens, will become more of one. I have been able to give noble Lords the best possible indication of what has happened so far, and of the fact that the elections are still due to take place in September.

Lord Avebury: My Lords, on the question of funding, does the noble Baroness agree that the donors are unlikely to cough up the 87 million dollars said to be needed by 1 July when they see humanitarian workers and those involved in the elections threatened and murdered, almost on a daily basis? How many times has President Karzai said that there can be no reconstruction without security? Does not the noble Baroness agree that the success of the Berlin declaration is conditional on the provision of additional NATO troops? When will they be deployed in troubled areas such as Gardez and Khost?

Baroness Symons of Vernham Dean: My Lords, the extension of the PRTs outside Kabul is absolutely vital to ensuring proper security in Afghanistan. I have not given an absolute pledge to your Lordships about the date of the Istanbul summit, which will be the date for the first PRTs, but it is crystal clear that the NATO effort in establishing these PRTs is the best means of stabilising Afghanistan.
	Regarding the noble Lord's point about reconstruction, it is always the case—and we have seen other examples—that security is a vital prerequisite of reconstruction. That much must be common sense wherever we have seen countries struggling with their security arrangements. If security cannot be guaranteed, then reconstruction becomes that much more difficult and the private sector has more concerns about putting people on the ground. That is why NATO is putting such forceful emphasis on that in relation to the discussions at the Istanbul summit and I hope that we will be able to discuss this in clearer terms after we have seen what the Istanbul summit is able to bring forward in terms of security help.

Lord Blaker: My Lords, one of the main problems in the reconstruction of Afghanistan is that some of the of the warlords are playing an unhelpful role in connection with opium poppy production. Will the reconstruction teams have any role to play in helping to reduce opium poppy production, bearing in mind that Her Majesty's Government have assumed the task of helping the Afghan Government to do so? Can the noble Baroness give the latest figures on opium poppy production?

Baroness Symons of Vernham Dean: My Lords, the noble Lord has understandably conflated the important point about pledges for reconstruction with issues about opium poppies and other drugs. Donor countries have pledged some 8.2 billion dollars over the next three years, including 4.4 billion dollars for the financial year 2004–05, which is more than the Afghans requested for that period. So I do not think there is evidence that the international community is not coming forward with the money needed to help Afghanistan and the United Kingdom has more than doubled its pledge from £200 million to £500 million over the next five years.
	The effort over drugs is continuing. A team of Afghan counter-narcotics police have been trained and they are being mentored by our own Customs officials with the support of the United Kingdom. I understand that, to date, this special force has seized over 32 tonnes of opiates and has destroyed 32 laboratories and opiate storage sites as well as significant quantities of the precursor chemicals. I do not have up-to-date figures about drug production other than those that I have given fairly recently, but what I have been able to tell your Lordships indicates that the scourge of drug production in Afghanistan is being tackled seriously on the ground.

St Helena

Lord Beaumont of Whitley: asked Her Majesty's Government:
	What steps they intend to take to encourage immigration to St Helena in view of the depopulation of the island.

Baroness Symons of Vernham Dean: My Lords, depopulation featured prominently in recent talks between the St Helena Government and a Department for International Development/Foreign and Commonwealth Office team visiting the island. Her Majesty's Government are working with St Helena on ways to address this important issue. They include a fiscal review to identify ways of stimulating growth and inward investment and further work to provide private sector development; an analysis of the terms on which some key public sector service appointments are offered; a review of the system of ministerial government; an assessment of access arrangements for the island; and a review of immigration and land purchase laws.

Lord Beaumont of Whitley: My Lords, while I thank the Minister for that helpful reply and for her helpful letter to me recently on this subject, is not encouraging immigration one of the ways of combating such an enormous amount of emigration? When there is an island community, no matter how worthy in itself—and worthily called "Saint"—would it not be a good idea to inject some entrepreneurship from outside? Would the Government consider reversing the decision that they made when the dependency was granted independence and give the islanders reciprocal citizenship rights with Britain?

Baroness Symons of Vernham Dean: My Lords, I remember being the Minister with responsibility for the overseas territories when we were discussing their rights in relation to citizenship. One of the issues that was put forward again and again was the concern of the overseas territories that there should not be reciprocity of immigration into those territories. Their fear was that, although they wanted to have rights of abode in this country, granting reciprocal rights of abode would simply mean that many overseas territories would be flooded with immigrants from this country. There is a real problem about saying, "Well that's what we said then, but we feel differently now".
	It is important to note that the drop in the population has been from about 5,500 to approximately 4,000. Most of the emigration has been by offshore workers who are still remitting relatively large sums of money back to St Helena, with the intention of returning there in due course. Many of them are putting money back into St Helena, building houses and building up businesses for the future. Of course there is an issue and that is why those five areas of analysis, review and consideration of what can be done have been undertaken by Her Majesty's Government.

Lord Waddington: My Lords, has the noble Baroness not been made aware that the Government have turned down all four proposals for air access put forward in response to the Government's 2003 invitation? How on earth can population decline be arrested unless there is air access to the island?
	Is the noble Baroness aware that one of the applications was turned down on the basis that the runway proposed was too short? Is she also aware that, if the runway was longer, that could affect the viability of associated developments and that the CAA has said that the runway is long enough? Why on earth, when the 2003 invitation document referred to the development of air access being part-funded by associated developments, are the Government now saying that they have turned their back entirely on such developments?

Baroness Symons of Vernham Dean: My Lords, of course I am aware that the four proposals were turned down. I am also aware that the Government's reason for turning them down was that none of the proposals put forward by the four respondents was satisfactory.
	However, that is not the end of the story. The Government made the position very clear in their parliamentary Written Statement of 19 April. A new feasibility study has been commissioned and the results should be available to your Lordships by November this year. The study will look at various options, such as the procurement options and likely tourist demand, and will investigate the environmental and social impact of future access arrangements. Therefore, the fact that the first four proposals simply were not suitable does not mean that the Government have turned their back on the question of air access. It is being considered and a report will be issued later this year.

Lord Howell of Guildford: My Lords, further to the point raised by my noble friend Lord Waddington about air access, are the Government prepared to make a funding contribution to any of the schemes when they are agreed? Since we and this brave island helped to save the rest of Europe from Bonaparte, would there not be a reasonable case for asking the rest of the EU to stump up as well?

Baroness Symons of Vernham Dean: My Lords, that is a terrifically ingenious idea. I like it, but I am bound to say that I do not think that it will be successful. None the less, it would be a good one for us to toy with.
	Investigations to date have centred on the potential for the development of air access to St Helena at a capital cost not exceeding £26.3 million. Had it proved possible to reach agreement with a private sector partner to achieve that without unacceptable risks to St Helena, we would have been able to accept one of the proposals already put forward. I believe that we must let this work go ahead. It is not only a question of air access; my colleagues are also considering the question of sea access to the island. Your Lordships will know that many questions have been raised about that as well. I think that we have to consider the questions of access in the round—that is, how do people and cargo get in—and I hope that the results of the study will be available for your Lordships to consider in November.

Lord Avebury: My Lords—

The Lord Bishop of Newcastle: My Lords—

Lord Grocott: My Lords, we are into the 17th minute and my noble friend is to answer the next Question as well. I think that she is working overtime and that we should move on.

European Union: Croatian Accession

The Earl of Dundee: asked Her Majesty's Government:
	Whether they consider that European Union accession negotiations for Croatia should begin following the meeting of the European Council on 17–18 June.

Baroness Symons of Vernham Dean: My Lords, following the European Commission's recent opinion on Croatia's EU application and the positive assessment of Croatian co-operation by the ICTY Chief Prosecutor, Croatia should be declared a candidate for EU membership. EU heads of state and government will consider the timing of opening accession negotiations at the European Council. The UK agrees with the ICTY and the Commission that Croatia must continue to make progress on judicial reform, minority rights and arresting the fugitive indictee, Gotovina, as part of its preparations for membership.

The Earl of Dundee: My Lords, does the Minister accept that, if the European Council approves the proposal, it must then clearly indicate when accession negotiations should begin? Does she agree that the setting of a date for this early in 2005 will, in itself, encourage progress and efficiency both within Croatia, which carries out further reforms, and within the European Union, which monitors that process?

Baroness Symons of Vernham Dean: My Lords, as I said, the June European Council will decide whether Croatia should be granted candidate status. I have indicated where Her Majesty's Government's views lie on that. That may also be the time to decide on the date on which to open the accession negotiations. However, it is difficult to pre-judge that question. It is a matter for Council discussion. I suggest to your Lordships that the issue is likely to be fairly heavily debated, and let us hope that some decision is forthcoming as a result of that discussion.

Lord Maclennan of Rogart: My Lords, I acknowledge that it is right that the Government should be satisfied that the preconditions for membership are attainable before the negotiations on Croatian access are started. However, does the Minister agree that the setting of a date for such negotiations might assist the process of seeking to meet those conditions within Croatia? Are the Government, in principle, in favour of setting a date?

Baroness Symons of Vernham Dean: My Lords, the Government are in favour of giving maximum clarity to the position of Croatia. Your Lordships can see that I am hesitant about the question of setting a firm date. As I stressed in my opening Answer, in our view it is important that the Croatian Government maintain and build on the levels of co-operation that we have seen. As your Lordships will know—we have been very frank on the matter—our concerns remain in relation to Croatia's co-operation with the ICTY. Of course, we are glad that the Chief Prosecutor is now satisfied with the level of co-operation, but the issue of the arrest and detention of Mr Gotovina is still not resolved. We believe that it would send a very strong and positive message to the European Council if he were arrested before the June Council meeting.

Lord Howell of Guildford: My Lords, does the noble Baroness agree that not only Croatia is in the waiting room, as it were, for 2007 accession talks and entry into the European Union but also Bulgaria and Romania? Is she aware that we on this side would strongly favour the fixing of a date, as suggested by the noble Lord, Lord Maclennan, for the accession talks to begin, provided that conditions are met in relation to both Croatia and, in particular, Bulgaria? A few more queries possibly remain to be resolved in relation to Romania before talks on that country can go ahead as well.

Baroness Symons of Vernham Dean: My Lords, I agree that not only Croatia is in the waiting room, but I also draw the noble Lord's attention to the fact that the Question is specifically about Croatia.

Badgers and Bovine Tuberculosis

Lord Livsey of Talgarth: asked Her Majesty's Government:
	Whether they will introduce an incentive scheme for the public to deposit badger carcasses found on roads in veterinary collection points to assist in the campaign against tuberculosis in badgers and cattle.

Lord Whitty: My Lords, no such scheme is envisaged. Indeed, we would not advise the public to touch wildlife carcasses by the roadside. In Cornwall, Devon, Gloucestershire, Herefordshire, Worcestershire, Shropshire and Dorset, Defra's wildlife unit will collect from the roadside any badger carcasses deemed suitable for TB testing. Defra is also undertaking a survey of badger carcasses and suspect deer in the Furness peninsula in Cumbria.

Lord Livsey of Talgarth: My Lords, I thank the noble Lord for that very encouraging reply. I am sure he would agree that there is a huge anachronism in that legislation is in place for dead farm animals to be collected but not wildlife. Given the statement that he has just made, is there a prospect of ensuring to some extent that the carcasses are collected, if not through a bounty scheme or by private individuals, at least effectively by the units of which he has just spoken? Clearly, dead badgers which remain on the roadside for weeks are a health hazard not only to cattle but also to humans.

Lord Whitty: My Lords, two different issues arise here. One is whether we should simply clear the carcasses from the roadside. That, ultimately, is the responsibility of the highways authorities, and we are certainly not encouraging members of the public to remove the carcasses themselves as that would create a health hazard and potentially a road safety hazard. There is also the issue of testing. In the counties to which I referred, a specialised wildlife unit picks up the carcasses for testing. But that does not take away from the responsibility of the highways authorities for any wildlife carcasses which present a hazard on the roadway.

Baroness Byford: My Lords, does the Minister accept that the bovine TB outbreak is out of control and spreading rapidly? Some 22,000 cattle were killed last year and that state of affairs is likely to continue. Does he recognise the severity of the outbreak and that farmers are frustrated? On the collection of badger carcasses found on roads, can the Minister give the House the figures for, say, the past five years, of how many badgers were collected and the degree of infectivity established in those badgers?

Lord Whitty: My Lords, on the last point, the study is continuing and I cannot give the precise figures because we are working on different samples. The aim is to compare the samples from the random receipt of badger carcasses from the roadside with the information that is coming out of the Krebs trials, which I am not in a position to put into the public arena because they are not yet complete.
	On the general situation with regard to TB, I accept that the situation is very severe and that TB is still spreading. I do not accept that it is out of control. The number of new cases last year was marginally fewer than the previous year and the backlog in testing has largely been made up. Nevertheless, it is the most significant animal disease problem facing British farming at the moment and very substantial testing and slaughter efforts are being made by the Government and our agencies. This has involved significant public expenditure and a severe cost to dairy and other livestock farmers. The importance of getting to grips with the matter cannot be overestimated.

Lord Carter: My Lords, can the Minister update the House on the latest situation regarding vaccination?

Lord Whitty: Yes, my Lords. Theoretically, vaccination could be part of the answer, but developing a vaccine is a long-term effort. In the past two years, we have spent £1.5 million on developing a bovine vaccine and we expect to spend about another £1 million this year. The research programme is in line with the timetable on the Krebs trials. We have also agreed to support the process of looking for a vaccine that could be used for badgers. Recommendations are coming to us from the Independent Scientific Group which proposes to complete within a faster timetable. Work is being undertaken on a vaccine for cattle and badgers.

Lord Jopling: My Lords, with regard to the testing of deer carcasses in the Furness peninsula in Cumbria, which he mentioned, can the Minister tell the House how many carcasses have been tested and how many of them have been shown to be positive for tuberculosis?

Lord Whitty: My Lords, for the same reason, I cannot give precise figures for the situation in Cumbria. The reason for testing in Cumbria is slightly different from that in the southern and western counties. Cumbria has been relatively clear of TB but there have been a number of recent outbreaks, most of which have been ascribable to movements of infected stock post FMD into Cumbria. There are some unexplained questions. We are trying to use the badger tests to discover whether the problem is caused by the local badgers, which hitherto have not been as infected with TB as badgers further south.

Lord Dubs: My Lords, when does my noble friend expect the Krebs trials to be completed? Are the Government considering evidence from other countries to help to develop the case; for example, from the Republic of Ireland?

Lord Whitty: Yes, my Lords, we shall consider evidence from anywhere. There has been a certain amount of press coverage in relation to a particular Irish experiment. That has not been finalised and, therefore, I am not in a position fully to assess the implications of the Irish trials. It has not yet reached full peer review within Ireland, so some of the coverage has been premature. On the first part of the question, clearly we are putting much effort into establishing the patterns of the spread of the disease from all sources.

Lord Roberts of Conwy: My Lords, I can confirm the comment of the noble Lord, Lord Livsey, that in some cases such carcasses are allowed to remain at the roadside for weeks. Is it not time that the highways authorities were reminded of their duty?

Lord Whitty: My Lords, I think the highways authorities are aware of their duties. In many cases we are talking about badgers on country roads which are the responsibility of a particular local authority. In regard to the Highways Agency roads, I am sure that the agency is well aware of its responsibilities in that regard and that it tends to clear roads relatively rapidly.

Lord Rotherwick: My Lords, can the Minister give the House an idea of when the figures may be available? We are talking about 15,000 cows being culled a year. We can identify when and where they are culled. Does the Minister agree that most farmers who read the answer that the Minister cannot give the number of badgers and deer picked up from the roadside and tested will consider that Defra was in a total and utter shambles over the TB débâcle?

Lord Whitty: My Lords, the noble Lord may conclude that. Anyone who has followed this story will recognise that we are trying to take a very systematic approach. The testing of roadside casualties is part of that and feeds into the general assessment of the spread of the disease. I did not reply to the part of the question of my noble friend Lord Dubs to which the noble Lord refers, which is when we expect the results of the trials. Previously we have said that we would expect the trials to be completed by 2006, although the report from Professor Godfray suggests that it may be a little later. But that has not been accepted by the group of scientists who are carrying out the trials so there is a slight dubiety about which date is the most appropriate end point. We believe that we shall have a fairly clear indication in 2006.

Business of the House

Lord Grocott: My Lords, before we start the Second Reading of the Pensions Bill and for the avoidance of doubt, I point out that we have an Unstarred Question scheduled today for lunch-time business. I am sure that all noble Lords will agree that it is common sense that that is taken at the conclusion of the first Second Reading debate and before the start of the next Second Reading debate. It is not clear when that will be, but I shall assume it will be around 2.30 p.m. I can be slightly more precise if everyone is able to abide by my second suggestion, which is that, if Back-Bench contributions on the two Second Reading debates are restricted to 10 minutes, we should still meet the target rising time of 7 p.m.

Pensions Bill

Baroness Hollis of Heigham: My Lords, I beg to move that this Bill be now read a second time.
	Most people can expect 20 to 25 years of retirement, and life expectancy grows around a year every decade. Today a quarter of all women will probably live to 93. If those years are to be rich and fulfilling, while in work we need to plan how much to save and when to retire. That means that our pensions, the main vehicle of our retirement income, must be reliable—because they will be relied on.
	Between 1979 and 1997 average pensioner incomes grew by 64 per cent in real terms under all governments compared with 36 per cent growth of real average earnings—nearly twice as much. However, while the incomes of the richest fifth of pensioner couples grew by 80 per cent, that of the poorest fifth grew by only 34 per cent, lagging behind the growth in real earnings.
	Since 1997, as a Government we have done much for those poorer pensioners who inevitably depend on state pensions. Increases in the basic state pension, the introduction of state second pension and the wraparound of pension credit have all helped to ensure that, compared with the 1997 situation, in 2004–05 the poorest third of pensioner households will be on average £1,750 better off a year in real terms—or an extra £33 a week.
	However, our levers for those pensioners with higher incomes and private pensions, even though they may be far short of full prosperity, are less direct. The combination of falling stock markets and falling employer contributions with which to meet increased longevity has destabilised the final salary pension promise. The task of the state is—by encouragement, regulation and reward—to secure the framework of occupational pensions, especially final salary schemes.
	In spring 2002, the then Secretary of State for Social Security asked Alan Pickering to look at how the administration of occupational pension schemes could be simplified. Ron Sandler was jointly commissioned by the Chancellor of the Exchequer and the Secretary of State to review retail savings in the same period. A quinquennial review of the Occupational Pensions Regulatory Authority (OPRA) and a National Audit Office value-for-money study into how OPRA worked also took place during 2002.
	The outcomes of all those separate reviews show that major themes for pension reform were emerging—reflected in the series of Green and White Papers published by the Government and informed by some 800 responses to its consultation exercise—culminating in today's Bill, which I would now, with your Lordships' permission, like briefly to describe.
	Our aim of increased security begins with the replacement, in Part 1, of OPRA with a new non-departmental public body—the pensions regulator. The new regulator will focus on protecting the benefits of members of work-based pension schemes, concentrating its effort on schemes where it assesses that there is a high risk of fraud, bad governance or poor administration. It is risk focused.
	The pensions regulator will inherit OPRA's current powers as well as having a range of new or increased powers that will assist in fulfilling its objective of protecting member's benefits. New powers will include issuing notices that require schemes to take specific action to remedy identified problems within a specified timescale. Failure to comply with such a notice may result in civil penalty.
	In addition, the new regulator will also have the ability to freeze a scheme for up to six months in certain circumstances—which is an important new power—thus protecting members' benefits and scheme assets while investigations take place.
	There will be an extension to the existing whistle-blowing responsibilities. Currently, that duty applies only to auditors and actuaries. The statutory whistle-blowing obligations will expand to include trustees, fund managers, employers, scheme administrators and independent financial advisers. A separate determinations panel appointed by the regulator would help to ensure that procedures are fair.
	Many of the new regulatory functions will be exercisable only by the determinations panel, which is, so to speak, the judicial arm of the regulator. The panel will have power to impose fines for specified acts or omissions. There will be one significant government amendment to Part 1. As I speak, I hope to indicate where the Government will be coming back with amendments, and I am confident that we will lay them in good time.
	There will be one significant government amendment to Part 1, which would ensure that the regulator has the necessary powers to combat the practice of pensions' liberation. There will also be amendments to ensure the proper functioning of the regulator's duty to protect the pension protection fund from abuse.
	Part 2 of the Bill will establish a brand new compensation scheme called the pension protection fund, which will be run by an independent board to strengthen member security by protecting the pension promise. It will provide compensation in two areas. First, the PPF will ensure that where a company with a defined benefit (DB) pension scheme becomes insolvent and its pension fund is not sufficiently funded—if it is sufficiently funded, there will obviously be a buy-out into annuities—members can be reassured that they will still receive the core of the benefits to which they are entitled.
	That will be achieved by providing compensation covering 100 per cent of the original pension promise, subject to PPF rules, for people who have reached the scheme's pension age and to those who are already receiving either survivor's benefits or their own pension on the grounds of ill health. People below that age will receive 90 per cent, subject to PPF rules, up to a maximum capped level of £25,000.
	Secondly, the PPF board will also take over the existing responsibilities of the Pensions Compensation Board and can compensate members of both DB and defined contribution (DC) schemes in cases of fraud and misappropriation.
	The PPF will be funded by a levy that will be split into three parts. The first part will be the pension protection levy, of which one element will be based on scheme factors, such as the number of members and the balance between active and retired members. The other element will be based on risk factors that are linked to the level of underfunding and other risk factors. In order to reassure levy payers that costs will be minimised for good employers with well funded schemes, the risk-based element will constitute at least 50 per cent of the total charge and will be introduced in due course.
	The second part will be the administration levy that will cover the set-up and ongoing costs of the PPF and the PPF ombudsman who will deal with appeals. Finally, the fraud compensation levy will, as now, cover and be paid for by both defined benefit and defined contribution schemes if and when a case of fraud occurs. Since 1997, I think that there have been only three such cases, which suggests that some of the procedures that were set up by the 1995 Act have worked effectively.
	The PPF has been designed so that government funding is not required. The fund can, within reason, control its own income through the levy and its own liabilities to ensure that it has enough funds to pay out compensation and reassure its members that they are sufficiently protected. In order to strengthen the level of support that is provided to certain groups, ensure the smooth running of the fund and to clarify the governance arrangements, some additional amendments on the PPF will be tabled and debated in due course.
	Those amendments will ensure that the PPF makes effective provision for certain groups, such as divorcees and those with short periods of service. They will also enable the PPF to take account of insurance contracts that are taken out by schemes in an individual's name and will align the priority order on scheme wind-up with the PPF provisions. An amendment will require the board to verify notices that are issued by an insolvency practitioner. Further amendments will mean that the costs of the PPF ombudsman are funded from the levy on eligible pension schemes rather than from a grant in aid and will give the Council on Tribunals oversight of appropriate PPF appeals. There will also be some minor technical and consequential amendments to this and other parts of the Bill, and minor amendments to align with tax changes and the European directive on occupational pensions.
	Part 3 will introduce new scheme funding requirements that will replace the minimum funding requirement (MFR) for defined benefit pension schemes. As your Lordships will know, the MFR was introduced by the 1995 Act. It was a one-size-fits-all arrangement. With your Lordships' agreement, we will be replacing that with a scheme-specific approach.
	This is a widely welcomed deregulatory reform, which has been developed through extensive consultation with the pensions industry, employers, the actuarial profession and representatives of consumer groups. As I say, there will be scheme-specific funding, which has been almost universally welcomed.
	Under the new arrangements, trustees will be required to ensure that an appropriate funding strategy is in place to provide for the benefits promised by the scheme and to put a recovery plan in place where a valuation shows that there is a shortfall. To help trustees fulfil their new responsibilities, the regulator will issue a code of practice to give them practical guidance on their duties and responsibilities in relation to the funding of their schemes.

Lord Skelmersdale: Yes, but it is not statutory!

Baroness Hollis of Heigham: My Lords, no. But whether trustees have behaved prudently and reasonably in the light of that guidance will be taken into account.
	Part 4 deals with the Government's Informed Choice agenda. It is the individual's own responsibility, where possible supported by their employer, to determine the level of income in retirement they want over and above the foundation provided by the Government through the basic state pension, state second pension and the pension credit. Many people, in changing jobs through their lives, may end up with several different sources of quite modest pension incomes which they must somehow integrate in order to understand what they can expect to receive in retirement, and whether during their 40s and 50s they need to make good a shortfall that perhaps they had not expected.
	The Government are working in partnership with pension providers and employers to offer people combined pension forecasts. This Bill contains reserve powers to make it a statutory requirement for pension providers to offer combined pension forecasts if significant numbers remain outside the voluntary scheme.
	In addition to pension forecasts, the Government are developing a retirement planning tool, to be made available on the Internet, to empower people to put tailored information about the financial outlook for their retirement into their own hands. I have seen a model of the tool and I invite noble Lords to look at it themselves at an appropriate time. I think that it will be a very effective and valuable aid.
	The Government believe that employers who make little or no contribution to their employees' pensions, and who have low levels of scheme membership, should ensure that their employees have access to the information and advice they need in order to plan for retirement. The Bill includes a clause to introduce this obligation. Its use will be informed by a pilot study to evaluate the most effective ways of delivering pensions information and advice to employees through the workplace. The findings of that study will be published during the summer of 2005.
	Part 5 applies the simplicity, security and choice agenda to the Pensions Act 1995. This is how we are trying to simplify matters and, as a result, encourage employers to continue to support the defined benefit agenda.
	On indexation, it was clear that the degree of inflation protection and hence the costs and liabilities that this imposed on schemes had become disproportionate. In effect, we were forcing everyone providing a pension to buy a high level of inflation insurance, which was becoming so expensive that some providers were choosing to pull out of pension provision altogether. Reduction of the mandatory indexation cap for defined benefit schemes reduces this burden going forward—and we must remember that people are trying to plan for not just two years ahead, but for 20 or 30 years—and help such schemes in paying for the pension protection fund levy.
	For defined contribution schemes we have accepted that a reduction in indexation would in fact increase complexity by adding an additional regime to the rules already governing the purchase of annuities. We therefore intend, as a result of guidance given to us, to correct this. If noble Lords are comfortable with this, and I would welcome views on the issue, the Government will take the opportunity further to simplify pension rules by introducing an amendment in Committee to reduce post-1997 indexation requirements for defined contribution schemes altogether. The member will then have the choice of turning their pension pot into an annuity, whether they do or do not buy an inflation-proofed annuity.
	The Bill will also drive forward a range of other simplification measures to enable schemes to restructure historic patterns of benefit provision providing suitable protection is offered. The Bill will streamline the requirements on member-nominated trustees, on dispute resolution procedures and reporting arrangements, in particular in relation to late payments, and remove the requirement for schemes to provide additional voluntary contributions. The point of this is that when that provision was introduced in 1987 or 1988, someone could not run a personal pension alongside an occupational pension, and therefore AVCs were offered. Now that it can be done, it is no longer necessary for this to be a mandatory provision by employers.
	On member-nominated trustees, we have accepted that our simplified requirements would nevertheless be better balanced by giving pensioners as well as active scheme members a statutory role in the member-nominated trustee processes. We shall introduce an amendment to that effect in Committee.
	On security, Part 5 includes provisions to provide TUPE-style protection—transfer of undertakings—of occupational pensions where a transfer of employment takes place, and for employers to consult their employees about major prospective changes to pension entitlement. It also seeks to improve the governance and hence the security of pension schemes through basic requirements to ensure that trustees are properly conversant with and knowledgeable about their powers, responsibilities and duties. I am sure that noble Lords will agree that all these are important safeguards.
	Finally, on measures to increase choice in Part 5, I am pleased to draw the attention of noble Lords to Clause 253. This will enable the many employees, in particular young people, who join an employer's pension scheme but leave before their rights have vested—most schemes vest rights only after two years—to choose between a refund of their own contributions in cash, which is all they can do now, or for the first time receive a cash equivalent of all their acquired rights which they can transfer into a pension of their own choosing. That means that they will be able to take with them the virtue of the contracted-out rights and the employer's contribution. The difference between that and the existing system can be 300 per cent. Instead of taking £800, a young person may take £2,500 with them.
	Also on choice, which is particularly important for young people moving between jobs, and for women who may have very different pension and work cycles by virtue of their caring responsibilities, I should point out that our intended amendment to remove indexation from defined contribution pensions will provide greater choice to members of such schemes when they come to purchase an annuity.
	Part 5 also contains measures to mesh pensions legislation in with the radical simplification of tax rules in the Finance Bill.
	Part 6 gives the detail of the new financial assistance scheme that has already been widely welcomed, helping to resolve what I would call the Allied Steel and Wire problem, with which I am sure noble Lords are familiar. The Government have made available £400 million of public money to provide assistance to those people who have lost their pensions due to their defined benefit schemes being wound up underfunded. The Government are talking to industry about the contribution it may wish to make, as well as discussing the best ways of administering the scheme. Further details of the financial assistance scheme, including who will be eligible and the level of assistance to be provided, will be developed through consultation with stakeholders. I shall not be able to give noble Lords much information on those today, but they will include pension scheme trustees, trades unions and key business representatives.
	Part 7 deals with the cross-border provisions of the European Union Directive on the Activities and Supervision of Institutions for Occupational Retirement Provision. The directive puts in place regulatory mechanisms to support the operation of pan or cross-European occupational pension schemes. Crucially, it leaves member states free to determine the structure of their pension systems in accordance with the principle of subsidiarity. This is an extremely technical and complex area, and we may need to ensure by amendment that the occupational scheme covering employees in the northern and southern Irish bodies established under the Good Friday agreement is adequately covered. We are still taking advice on this.
	Part 8 includes measures that will further support our aim of increasing choice about when people retire and encouraging those who wish to do so to work on into later life.
	That brings me to the state pension section of the Bill. The proposals will improve the reward for those who delay claiming their state pension by bringing forward the increase in the rate at which state pension increments build up and removing the current time limits on deferral. These changes were due to come into effect in 2010, but we will be implementing them from April 2005.
	We acknowledge that increments to the pension even at this enhanced rate will not suit everyone, in particular those who may feel that they cannot necessarily look forward to a long life in retirement. Some people might prefer to get the gains from deferral straightaway in the form of a lump sum, in particular if they are moving into retirement without much in the way of capital or savings. So we will also introduce an entirely new alternative to the higher weekly pension that comes from deferring the drawing of the state pension in the form of a lump sum payment consisting of the pension given up while deferring, plus a rate of interest. This interest rate, set at 2 per cent above the Bank of England base rate, is, we believe, a very fair return. For example, it would mean that for a couple, he may decide to take increments while she decides to take the lump sum. Such choices will be available.
	To conclude, the key issue is whether, in the view of noble Lords and those of industry, employers, pensioners and employees, the Bill answers the right questions as well as getting the answers right. The key question is: will the Bill encourage both employers and employees to invest more in their pensions to protect against poverty or a lack of adequate income in old age?
	This leads to further questions. For employees, will the Bill secure greater stability of schemes; greater confidence in the pension promise; greater willingness—this is key—to forgo current income for future needs? It can do that only if there is confidence in the security of their deferral and the sharing of their income over a lifetime with both the scheme specific funding, on the one hand, and the pension protection fund, on the other, in place.
	For employers, will the Bill not compromise the ability of the employer to remain solvent as an employer as well as guardian and co-provider of the pension promise?
	In the process, has the Bill got the balance right between intervention, regulation and protection from scheme insolvency and the need of the pension regulator to focus on risk and the need for schemes to have greater flexibility in meeting their own commitments?
	As to cost, is the "who pays/who gains" equation reasonable and equitable between employers and employees; between pensioners, deferred pensioners and employees; and between stakeholders, genders and generations? I believe so. The consultation process suggests that this view is widely shared. I commend the Bill to the House.
	Moved, That the Bill be now read a second time.—(Baroness Hollis of Heigham.)

Lord Higgins: My Lords, this is clearly an important piece of legislation. It is as important as it is complicated, which makes it very important indeed. This is reflected in the list of distinguished and expert speakers today, many of whom have great experience not only in government and ministerial office but in the practical world of pensions operations. The practical application of the Bill is the most important aspect we will need to consider and there have been many representations from outside bodies on the proposals before us today.
	In her opening remarks, the Minister referred to the provenance of the Bill in terms of White Papers, Green Papers, more White Papers, outside consultations and so on, which are all listed in the Explanatory Notes. But, despite that, when the Bill came to the House of Commons there were hundreds of amendments. The Engineering Employers Federation has pointed out what happened in the Commons. When the Bill was published it comprised 235 pages with 248 clauses and 12 schedules; when it completed its Committee stage it had grown to 280 pages with 282 clauses and 13 schedules; now the Bill comprises 316 pages, in two volumes, with 310 clauses and 13 schedules—all of this against a background of a programming Motion agreed at the beginning of the proceedings. Although it was later extended to some extent, against that background, the ability of the Opposition—or, indeed, the Commons as a whole—to give the Bill adequate scrutiny has clearly been diminished. It is an extraordinary situation.
	I am afraid that yet again—as has been the case on previous pensions Bills—your Lordships' House will have the responsibility of clearing up what the Commons have, to a large extent, been prevented from doing on a Bill which was clearly inadequately presented and drafted in the first place. This gives one grave cause for concern; it has gone from an unfortunate lapse occasionally to become a very nasty habit. We shall need to pay very careful attention to these measures.
	We on this side are clearly in favour of protecting the pension rights of individuals. However, we and outside bodies have very serious reservations about the proposals. In opening the debate, the noble Baroness made some general remarks about the present situation—but we are in a pensions crisis. It is, of course, to some extent, the result of the ageing population, the falling stock markets and the annuity rates, which are not divorced from general government or the Chancellor's policies. But, while saying that there had been destabilisation of the final salary pensions promise, the noble Baroness totally failed to mention the most important factor—that is, the effect of the Chancellor's action on advanced corporation tax.
	The noble Baroness referred to the savings ratio, which has halved under the present Government. The ABI, for example, estimates that there is now a £27 billion a year saving gap. This will not be significantly affected by the Bill. The dreadful decline that we have seen in the number of defined benefit schemes and the conversion to defined contributions schemes will quite clearly be accelerated rather than retarded by the effects of the Bill.
	I shall deal first with the question of the regulator. From my own experience, I feel that OPRA did a remarkably good job. But, at all events, we are going to have a new regulator. However, as has been pointed out by the National Association of Pension Funds, in addition to the regulator those operating pension schemes will have to contend, if that is the right word, with the FSA, three ombudsmen and three government departments.
	The new regulator will have draconian powers and the extent to which that could complicate matters for those administering pension schemes may well offset any improvements in the simplification that is likely to result otherwise from the Bill. We are faced with a new regulator and the noble Baroness has suggested that there are yet further amendments to come in regard to some aspects of his work.
	Certainly very considerable doubts have been expressed by the CBI and others about the effects of Clauses 35 and 39 and the operation of the anti-avoidance schemes and so on. Clearly we are in favour of effective anti-avoidance schemes but there are dangerous implications in the complex proposals in these clauses.
	The regulator will not be able to prevent employers becoming insolvent. There was a great deal of confusion in the other place and, perhaps, to some extent, in the Minister's remarks. We are concerned about two separate risks: one is that the employer is insolvent; the other is that the pension scheme is underfunded. We need to be clear about this aspect and I shall deal with it in detail in a moment. Before doing so, however, I should like to deal very rapidly with some other aspects of the Bill.
	The noble Baroness placed great stress on Part 4, which concerns financial planning for retirement. I am fairly sceptical about any forecasts given to individuals as to what they are likely to receive in retirement. Certainly those who very prudently, they thought, invested with Equitable Life will find that what they receive will not turn out to be in line with the forecasts they have been given.
	Similarly, there will be a need, for example, to make assumptions about what is happening to the state pension. We on this side of the House have made our position very clear so far as that is concerned. Obviously a forecast would have to take into account the assumptions that one party as against another makes on state pension provision. I am sceptical about these clauses but no doubt we can debate them in detail.
	I welcome the scheme's specific proposals and the elimination of MFR, which has not worked effectively, but we need to be very careful as to exactly what method is used to calculate the scheme's specific proposals. Again, we can deal with that.
	Thirdly, as to the proposals on LPI and the cap at 2.5 per cent rather than 5 per cent, I doubt whether there is a case for it at all. The reduction in the cap has somehow been presented as a benefit. It is certainly not a benefit as far as pensioners are concerned, but somehow that is the way it has been spun. I find that a very strange situation.
	I turn now to the central part of the Bill—the pension protection fund. Many bodies in this House and elsewhere have stressed the moral hazard of this aspect and the danger that perfectly sound schemes may have to pay for the effects of unsound schemes going bust. As I said earlier, it is important to stress that there are two separate risks—the insolvency of the company as against the underfunding of the scheme.
	What is proposed is not a guarantee. Indeed, the possible benefits are capped. I shall not go into the details, as the noble Baroness spelt them out. There are varying opinions on whether the level of proposed payout from the fund is too high or too low. The Association of Consulting Actuaries believes it to be too high. This will depend on the level of the levy. At all events, what are being protected are the accrued benefits only, not the pension which employees in a company expected to receive when they retired, before the employer went bust.
	I understand that the fund will set the levy. But there is a great concern that this should be risk-based rather than flat-rate. I believe that to be extremely important, because otherwise perfectly sound schemes would pay a premium for something from which they are not at risk. Again, the moral hazard argument arises. The CBI has rightly stressed that this will be an addition to business costs. The National Association of Pension Funds says that this will be a non-democratic body to raise a tax from a constituency which has yet to be defined. This gives us considerable cause for concern.
	The noble Baroness was a little confused on this point, but as I understand it, the principles of the levy, apart from the administration costs, are that the risk will need to take into account the risk of the employer going bust and the extent to which particular schemes are underfunded. That will not be a very easy thing to do. I am not clear what the implications would be if the fund suddenly announced that such and such a company was at a high risk of going bust. These are not simple matters.
	There are further concerns that the fund will run out of money before it starts. It is significant that the amount that the Government apparently envisage it costing—about £300 million a year—is less than the amount they are proposing to pay out to schemes which have already failed, at a cost of £400 million a year.
	As the United States has found out, there are real dangers. The Pension Benefit Guaranty Corporation is at present something like 11 billion dollars in deficit. The Government, having underwritten the position of those, alas, who have found that their pension schemes have already failed recently, are not proposing to underwrite the fund itself. There seems to be a slight inconsistency in those two positions. We are clearly heading for a very difficult transitional period as we switch from the present proposal the Government have suddenly come up with to the longer-term proposals in the Bill.
	It seems probable that the fund will become a massive conglomerate of funds which have failed and have become, in the rather euphemistic words of the Bill, eligible funds. If various funds and companies fail, the fund's managers will have the enormous task of dealing with administering a very complex fund particularly with regard to payouts. As I understand it, the payouts with regard to survivor benefits, and so on, will depend on the rules of the scheme which has been taken over. The fund may end up with dozens or even hundreds of these over a period of time, so it will be paying out benefits in a multitude of different ways. Perhaps the noble Baroness will confirm whether that is the case.
	As the fund will have to administer the assets it takes over, it surely ought to have the same degree of transparency as exists with an ordinary scheme. That is, it should be obliged to set out its investment principles and the allocation of assets. The latter will need to change with time, but I should have thought that there was a case for putting on the face of the Bill the fund's investment principles—obviously amendable by regulation if necessary. This will be a very complicated matter.
	There are many other issues I have not dealt with, such as the position of trustees, in which, having served as chairman of a board of trustees of a fairly large fund for some years, I am extremely interested. Furthermore, the anti-avoidance provisions may be excessively onerous. The Bill does not deal as well as it could with solvent companies which renege on their pension promises, and we will need to consider that as well.
	To a large extent, the Bill has become necessary as a result of what has happened to the pensions industry since 1997. I do not think that it would have been necessary to introduce such a Bill in 1997. It clearly is necessary now and I believe that we will have to work very hard to make sure that it is practical and workable. We on this side of the House will do our best to achieve that.

Lord Oakeshott of Seagrove Bay: My Lords, today's debate is the overture to an opera of many acts which will inevitably, in light of our starting date, have very long intervals. Day after day in the other place, as the noble Lord, Lord Higgins, pointed out, Members struggled to digest a demanding diet of new government clauses and amendments. I had hoped that we would be spared much more of this from the Government in this House. My noble friend Lady Barker has weighed the Bill carefully. The two volumes and the Explanatory Notes come to 1.48 kilograms—three and a half pounds, in old money. It really is about time the Government tried to cut down on obesity in their Bills.
	Some of the proceedings in the other place inevitably smacked more of pre-legislative scrutiny than proper, detailed parliamentary consideration of a complex Bill, offering properly worked-out solutions to Britain's pension crisis. No other issue in Britain combines such economic, political and social significance, and on no other issue, despite the impression the Minister tried to give, is there such widespread acceptance by all sides of industry, independent experts and stakeholders—as new Labour loves to call them—that current government policies have failed and we need a radical change of course.
	I declare my interest as a pension fund investment manager for the past 28 years. We have already, in this House, displayed remarkable consensus, apart from the Government, in the debate initiated by the noble Lord, Lord Fowler, in March. Today I intend to focus not on what is wrong in government pensions policy—I only have 15 minutes—but on how this House can improve this well intentioned but muddled Bill. Let me start with a warm and genuine welcome for the good intentions.
	We welcome the new proactive pensions regulator—a tiger with teeth, we hope, when things start to go wrong, instead of a box-ticker limited to fining funds for technical infringements or putting returns in a few days late. We welcome, too, the cornerstone of the Bill, the new pension protection fund. Workers and pensioners are, rightly incensed to find their hard-earned contributions effectively stolen from them if companies go bust with deep troughs in their funds, indulge in fancy financial engineering to shuffle off pension liabilities in subsidiaries or move businesses offshore, leaving pension black holes in Britain.
	We all agree on the problems, but we on these Benches will do our utmost in the weeks and months ahead to improve and strengthen the Government's proposals for the PPF. We must put far more flesh on the bones of what is really only a skeleton in the Bill. As for the "son of PPF", the £400 million financial assistance scheme, so-called, knocked up between the Prime Minister and the Chancellor of the Exchequer on the back of the note from their Chief Whip warning them that the Government faced imminent defeat in the House of Commons, that is not even a skeleton in this Bill. It is more a twinkle in the Government's eye. They really must give the House a proper account of how that £400 million in the next 20 years will operate, who it will cover and what it will cost, if we are to do our job of scrutiny properly.
	Britain is split into two nations on pensions: in public pension land, if I can call it that, 5 million employees enjoy full protection against investment risk, inflation risk and insolvency risk from a guarantor safer than the Bank of England—the British Government, with unlimited recourse to the British taxpayer. The other 19 million people at work are barely covered by a ragged patchwork quilt of mean and means-tested state pensions, leaving women worst off, and a fast unravelling web of private pensions covering ever fewer people with ever poorer benefits.
	We see a classic case of the Government's schizophrenia on pensions in Schedule 5 of the Bill, setting up the PPF. Paragraph 27 states that the chair and staff of the PPF will be eligible for a Government-backed pension for which the,
	"Board must pay to the Minister for the Civil Service . . . such sums as he may determine".
	So private sector schemes struggling to meet their pension commitments and pay their levy to the PPF will also have to sign a whole book of blank cheques to the Minister for the Civil Service to charge whatever he likes for giving government-guaranteed index-linked pensions to the board and staff of the PPF. Other public bodies, such as the FSA, do not grant Civil Service-type pensions, so why should the PPF?
	French restaurants used to have a sign outside, saying "Le patron mange ici", but the PPF will not taste its own basic cooking if the Government get their way. The sky is the limit on index-linking on the PPF boardroom menu.
	Following the initial period, the Bill provides for a transitional period during which the implementation of the risk-based element of the levy may not be applied. As the PPF is essentially operating as an insurer of the benefits to be provided in the event that a scheme is wound up with an insolvent employer, it is essential—and here I stand shoulder to shoulder with the noble Lord, Lord Higgins—that the levy charged by each scheme reflects properly the risk involved. A well funded scheme supported by a strong employer should not be charged the same levy as a similarly funded scheme with a weak employer.
	In fixing PPF premium rates the two key factors are the scheme funding level and the risk of employer insolvency. The real risks to the PPF will be heavily concentrated in schemes where weak employers run underfunded schemes, and the premium paid must reflect that joint risk fairly as soon as possible. Any other policy would be a poll tax on pension funds, penalising responsible employers and prudent trustees.
	We will propose, therefore, that, after the initial period, the risk-based element of the levy should contribute at least 80 per cent of the total. The risk-based element is, as set out in the Bill, a function of the scheme position, in particular the shortfall between its assets and liabilities to which the PPF is exposed—the "sum at risk"—and the employer's position—that is, the likelihood of insolvency.
	The essential ingredient in calculating the sum is that it should be determined on a consistent and objective basis across all schemes. That is not a mere technical matter to be left to the yet-to-be appointed board of the PPF. It is fundamental to fair operation of the scheme, and Parliament must make two things crystal clear in the Bill: when the risk-based levy will be in full operation, and the basic principle that the risk-based levy must be calculated on the joint risk of scheme underfunding and employer insolvency. Parliament is compelling all DB pension funds to pay this levy and Parliament must therefore set its main parameters.
	To make it easiest to move rapidly to a mainly risk-based levy, the PPF board should provide the basis for a broad-brush assessment of the sum at risk for each scheme to be introduced at an early stage. We appreciate that it will not be possible for a precise assessment to be made immediately, but there are funding calculations made for all relevant schemes which would provide a starting point. For all its faults, the MFR provides that. That could lead to a much fairer interim solution than the poll tax solution, and would help the transition to the final goal of a scheme-specific risk levy. Responsible employers with properly funded schemes are not prepared to wait until 2008 or 2009 to move to a proper risk-based levy, particularly as there will be an extra element of moral hazard in letting underfunded schemes choose whether to wait for a triennial valuation or do it immediately.
	No insurance company would last five minutes if it let its bad risks pay a flat-rate premium and its good risks pay the correct risk-based premium. This nonsense policy for the first few years will not wash for the PPF either. Waiting for the best here really would be the enemy of the good and waiting up to five years for the perfect solution would be grossly unfair in the mean time. The National Association of Pension Funds assures me that an interim approach along the lines that I have outlined would attract the support of most pensions schemes that are exposed to the PPF levy. One of the main problems of the Bill, as the noble Lord, Lord Higgins, said, is that it delegates too much power to the board of the PPF, which is a non-elected public body.
	The second key question on the PPF is whether the Government, who appoint the chairman and the board in the first instance, and in practice pull most of the PPF's strings, can wash their hands of all responsibility if the PPF gets into serious trouble. We recognise that there are interim solutions in the Bill, such as suspending indexation. But is anyone seriously suggesting that the Government, having invested so much parliamentary time and political capital in setting up the PPF and going one step further by establishing the financial assistance scheme would stand idly by if the PPF could not meet its 90 per cent and 100 per cent obligations up to a cap, as set out in the Bill? Of course not; so why do they not come clean and admit that they would, if they had to, act as a lender of last resort on a clearly defined and limited basis?
	There are precedents; the Bill provides one, as the Exchequer is to lend the PPF enough to cover its start-up costs before the levy is charged. Well established now for many years is the Pool Re arrangement for insurance of commercial buildings against terrorist attack, whereby the Treasury explicitly stands behind commercial insurance companies and unconditionally guarantees their obligations. I have raised that point before in the House and not had an answer, so can the Minister either explain why the Pool Re principle cannot be applied to the PPF or, alternatively, undertake to procure a proper answer from the Treasury?
	Business and industry are also concerned about the complex provisions introduced late in the other place, designed to make directors and investment groups liable for pension fund shortfalls. A fine balance has to be struck, between on the one hand, too lenient a line that enables directors to walk away from their obligations or parent companies to shuffle off their subsidiaries and, on the other hand, too tough a regime that makes company rescues impossible or stifles venture capital investment—a great favour of Gordon Brown's, noble Lords will recall—or management buy-ins or buy-outs at troubled companies. We must protect pensioners properly without making the market in struggling companies seize up. We shall take some convincing that the Bill has got the balance right so far.
	My noble friend Lady Barker will cover the vital topics of fair treatment for women, survivors and state pension issues in so far as they feature in the Bill. State pensions are the black hole at its heart. So long as long-term state pension policy in this country is founded—let us be fair to the Minister and the Government, quite openly and honestly—on means-tested benefits for the majority, it really will be gross mis-selling to try to persuade millions of our fellow citizens to save privately for a pension. This Bill is not the place for that battle of principle, which will be fought between the three main parties at the general election, when pensions will be right up there with health, education and the economy at the top of voters' concerns. As we prepare for the long hard slog of work on the Bill, I find it difficult to banish the haunting fear that without radical reform of state pensions we will, like Nero, merely be fiddling while Rome burns.

Baroness Dean of Thornton-le-Fylde: My Lords, I very much welcome the Pensions Bill. It is a complex Bill that will take a lot of time in debate. There will probably be quite a number of amendments to it. At the heart of what it must achieve is to bring back some of the confidence in occupational pensions that has been lost over the past few years. It is a long Bill, but anyone involved in pensions knows that there is no such thing as a small, neat, few-clause Bill that deals with pensions. I notice that the noble Lord, Lord Oakeshott of Seagrove Bay, is agreeing with me. After chiding the Government for the 1.4, I think, kilos, it is interesting to listen to the noble Lord chide the Government about the length and complexity of the Bill—and then go on to complain that Part 6 has only one clause and ask for more. That is actually the heart of many of the debates that we will have; we would like simplicity but I do not think that it is possible to have it.
	With the exception of fraud and Part 8, the Bill deals mainly with defined benefit schemes. It would be a shame if we lost sight of the fact that the number of people in the UK participating in occupational pension schemes and benefiting from them has grown over the past 20 years. They have been a huge success, with the exception of the past few years. Many people today are enjoying a quality of retirement that my father's generation never enjoyed. There is consensus in the country that we want to rebuild confidence in occupational and personal pension schemes so that people can look forward to retirement with confidence. When I was a union officer, members never queried how their money in their company pension scheme was being handled because they had confidence in it. It was probably misplaced, but they had confidence that the pension scheme would be okay in the end.
	The 1995 Bill was brought about by the huge-scale fraud by Robert Maxwell. This Bill has been brought about for a different reason: to try to rebuild confidence. I noticed that the noble Lord, Lord Higgins, rightly received quite an accolade of approval from his own Back Benches when he appeared to lament the shift from defined benefit to defined contribution pension schemes, which cannot be retrieved. I see that the noble Lord is nodding in agreement. Let us cast our minds back to the previous administration. People were paid money to encourage them to take out personal pensions and to pull out of their occupational pensions.
	Let us look at the matter in the round. Much of what we have today is a result of the decisions that we all supported in the past; for example, pension holidays for employers. Many of us know of employers who have not paid pension contributions for employees for a number of years. That cannot be right. Under the pension legislation, many employers take surpluses out of the pension scheme. So there are a number of reasons why we are in the state that we are in, among them the shortcomings of the Act.
	I welcome the one-clause Part 6 of the Bill. Well, it is currently one clause, but it will probably be several clauses when it leaves this House. It deals with financial assistance for members of certain pension schemes; that is, those people who, today as we debate the Bill, do not know where their retirement income is coming from and are worried about it. I have seen people in the Maxwell scheme who were worried to death about how they were going to make ends meet when they retired.
	But there is a bigger impact; they felt complete failures in the eyes of their families. They had promised them that they would be financially okay when they retired and they had to turn to their families for financial support, a situation which we hoped had gone out of the window. I thank the Government for introducing the clause. It may have been hurried and it may not be perfect, but let us hope that it will be near to perfect when it leaves this Chamber. I look forward to the debate on this clause.
	I also welcome the creation of a pension regulator. It is a much more pragmatic, flexible and better approach. The noble Lord, Lord Oakeshott, or the noble Lord, Lord Higgins, said that OPRA was not the failure that many people said it was and I pay tribute to the work that OPRA has done. The problem is that the ballgame has changed. The whole environment has changed and OPRA has not kept up with it. So I welcome the new regulator. I also welcome the regulator's ability to take an incremental approach to sanctions on pension schemes.
	I know that there is a lot of dissention about the flat payment in the pension protection fund. Like most people, I believe that a substantial part of it should be risk-assessed, but we must start where we start. We must build up a no claims bonus for a company within the scheme. The shorter the flat-rate period can be, the better. Having said that, it must be flat rate from the beginning. Many of us can name pension schemes that, a few years ago, we would have said were solid—I almost said "as the Bank of England"—which ran into serious trouble and have deficits today.
	The provision for financial planning for retirement has long been needed. It is welcome. I must declare my bias on this. My noble friend the Minister referred to employers who do not provide pensions or who perhaps have a small take-up in the company. My view is that if we do not get this right, at the end of the day compulsion is the only answer. We must find a way of dealing with this, otherwise compulsion will be forced upon us by the instability of pension schemes.
	Among the enormous amount of briefing I have had, the CBI wrote regarding Clauses 233 to 238. It considers that a legal requirement for training is unnecessary and would undermine the willingness of member-nominated trustees to serve. If that statement is true, I agree with it. But I have read the Bill and it does not mention legal qualifications. It refers to "knowledge and understanding". I agree with that requirement and with training. It is absolutely essential, but an insufficient number of trustees receive it. Indeed, trustees worth their salt would insist on having it. I would not be a trustee without it. But if someone is going to be told that he must have legally assessed qualifications, then employees will not be willing to come forward. Will the Minister clarify that?
	Part 8 deals with state pensions. There are changes that must be welcomed in view of the changing world of work; for example, people having to defer retirement. The ability to defer pension and be encouraged to do so by a small bonus is most welcome. People can then convert a lump sum of their pension.
	However, I am disappointed that the Bill does not recognise the role of part-timers. They form a growing proportion of the labour market, yet the Bill does not take that into account. More significantly, a number of people hold several jobs and their cumulative income would be above the lower limit, yet they still cannot be part of a pension scheme. I want us to examine that issue in Committee. It particularly affects women but, with the changing nature of work, it will affect an increasing number of men, too.
	The Bill does not mention annuities. Noble Lords who have heard me speak in other debates about pensions will know that I do not accept the Government's current policy. If we do not address the issue of annuities, it will revisit us. It is already an issue. It is an insufficient argument to say that it does not affect many people and that the only people it affects are those with big pots of money in their personal pension schemes. That is changing because of the change from defined benefit pension schemes. The annuities issue could have had a place in the Bill. It does not have one, which is a great disappointment and I think that the Government will live to regret it.
	I was a sorry case as I was always interested in pensions even when I was a young woman. Years ago, a glazed look would come over the eyes of members I was proud to represent, but not today. Today, people know that their pension is, perhaps after their home, the biggest investment in their life. More importantly, if one cannot afford one's home, one can downgrade. If something goes wrong with one's pension, it affects the rest of one's life after retirement. As my noble friend the Minister said, we are living longer and are therefore more dependent on the assuredness that our pension will be there when we need it.
	I therefore welcome the Bill and the forthcoming debate. I rather suspect that the Minister is in for a hard time on some aspects of it. I just hope that the House is able to give it a good passage and sign off on a measure that we can all ultimately accept.

Lord Fowler: My Lords, it is a great pleasure to follow the noble Baroness, who made an important speech. It will come as no surprise to her to hear that I strongly agreed with her final comments on annuities.
	On a day when there are European elections and important local elections—and we very probably stand on the brink of a major electoral scandal—I suppose that it is fanciful to think that our deliberations on pensions are going to get many column inches in the press tomorrow. That is a pity because more and more people are understanding the scale of the pensions problems that we face in this country. I think that that is how the Bill should be judged. The Minister touched on that point but then moved away from it rather rapidly. We will come to the Committee stage, but the question now—at Second Reading, on the issue of principle—is how the Bill faces up to the problems that we unquestionably face.
	No one can complain that the Bill is too short. It has more than 300 pages of closely printed script and we are still counting. Judging from what the Minister said, we are going to be counting quite substantially. It would be unworthy of me to say that I can find nothing in the Bill with which to agree. In Clause 283, on page 213, I found a set of proposals that I welcome. As it happens, they deal not with paying the state pension but with deferring it.
	Many of us have long argued for flexibility in retirement—I advocated that in my Green Paper on pensions back in 1985—and a decade of retirement between 60 and 70. However, making that a reality involves creating some incentive to work on. I think we can agree that the present incentive is not great. The figures which I have indicate that currently only 2 per cent of pensioners defer their pension and the average length of deferral is two years. Some research suggests that many of those who defer do so by accident, not as a deliberate policy.
	I therefore welcome the increase in increments and the concept of the lump sum that one can get in occupational pension schemes. In Committee, I think that we will have to examine whether that incentive is enough and whether it could not be a tax-free lump sum. Even now one calculation suggests that a retired man will have to live to 81 to find that beneficial. However, that point is for Committee. Nevertheless, I welcome the direction of policy. I also welcome the movement on the ASW type of situation where pension holders were deprived of their rightful expectations. That was the theme of the debate we had on 24 March which I led and where I think there were calls from round the Chamber for a change in that policy.
	I can therefore certainly welcome parts of the Bill. However, that is not actually the acid test. The acid test is basically this. When the Government introduced the Bill, they said it was designed to restore confidence, to encourage employers to increase their occupational provision and to encourage individuals to increase their private pension saving. What we need to do at Second Reading is to measure whether they have succeeded in doing that. My concern, basically, is that they have not.
	The context of the Bill is, as my noble friend Lord Higgins said, the current pensions crisis. However one measures the position, no one can be satisfied with what has happened over the past six or seven years to occupational pensions; it has been a dire period. We have seen public confidence in pensions fall. We have seen the number of people in private pension schemes reduce. We have seen an increase in the number of pension schemes wound up and a steep rise in the number of final salary schemes closed to new entrants. According to the Association of British Insurers, 36 per cent of the total working population are not saving enough for their retirement, and of that 36 per cent, four-fifths are not saving anything at all.
	So the real challenge is to face the prospect that under present policies hundreds and thousands of people will face a bleak and money-pinching retirement. Surely that is something that on all sides of the House we wish to avoid.
	I am not suggesting to the Minister that everything that has gone wrong can be blamed on the Government. That would be absurd. They cannot be blamed for the fall in the world stock market. But I think it disingenuous of the Minister to miss out the fact that the £5 billion a year pension tax has had an impact on pension provision in this country; it clearly has. It was introduced at exactly the wrong time. The public have understood it, but when encouragement and practical incentives were needed they were given precisely the wrong thing.
	Probably the most important measure the Government are introducing in the Bill is the pension protection fund. Although I say that they are introducing it, it is being paid for by the pension schemes. So although I see the force of what is being proposed, there seems to be a range of practical issues and practical questions about how it will work. The noble Lord, Lord Oakeshott, referred to a range of those.
	There is a difficult balance. We all want to protect the pension holder, but we do not want to add to the cost of the schemes to such an extent that it acts as a deterrent for new schemes being formed and a further encouragement for the closure of existing schemes. We do not want unfairly to penalise good, well funded schemes, and we have to be clear what kind of guarantee we are giving to pension holders. At the moment, I think that the public understand—because this is the way that it has been spun—that there is an absolute guarantee here. But it is not an absolute guarantee. The only way that the scheme could be that is for the Government to stand behind it.
	I say in parenthesis—and in a sense I echo the remarks of the noble Lord, Lord Oakeshott—that I really do wonder whether, in the real world, any government would be able to maintain a position in which they were not standing behind a scheme of this kind. So we will need to examine that carefully in Committee.
	Basically, I am saying that irrespective of any examination in Committee, this measure is not going to have a great impact on persuading men and women to save more for their retirement. It is going to have little if any impact on persuading those without any pension to start saving. Yet those are the urgent issues, and those are the issues that have been ignored in the Bill. My own belief is that at least two measures could be taken.
	The first—mentioned by the noble Baroness, Lady Dean—is to end the rule that anyone with a personal pension must take an annuity at the age of 75. I think annuity rates have halved since 1990. The position has changed. The public know and understand that the position has changed. This age rule, in my view, acts as a great disincentive to saving when we should be about providing incentives. I will not delay the House with all the arguments on this, but I should like to give notice that I certainly wish to return to the issue in Committee.
	My second proposal is more controversial, although I was encouraged in our last debate by the support I received from two of my noble friends. I am coming firmly to the view that the only way that we can increase pension saving is if we have some form of compulsory private scheme to which employers and employees are required to contribute. When I mentioned that in our March debate, the Minister suggested, rather unkindly I thought, that we never thought anything along those lines in government. As it happens that is not true. My 1985 Green Paper, approved by the whole of the Cabinet, proposed just that, along with the abolition of the state earnings related pension scheme—which the Government have now done.
	In other words, my proposition was that the state should be responsible for paying as good a basic state pension as possible, and the private sector should provide the second pension. I regret that that was considered too radical at the time on the part of most members of my party and certainly on the part of the party opposite. However, in my view it is the way forward because the sad fact is that even when companies provide defined contribution schemes, often employees do not take them up, even when there is a matching contribution from the employer on offer.
	I know that arguments will be put against compulsory pension contributions, but we should consider the alternative. The alternative is that not only will many, many people remain uncovered, but state provision will go up, not down. I remind the House that the aim of both parties is that that should not happen. Back in 1998 the Government set out their first pensions Green Paper. They said then:
	"State spending will increase but income from private pensions will increase even more as stakeholder pension schemes become established and occupational pension schemes are strengthened and supported".
	They went on to say that the state share, therefore, would go down and private pension provision would go up. I say to the Government that there is absolutely no sign whatever of that happening; in fact, quite the opposite is taking place. Stakeholder pensions have not been a success and occupational pension schemes have not been strengthened. On the present policies of this Government I do not believe that they will achieve 60 per cent of pension income from private schemes.
	Finally, there is basically a pensions double whammy. On one side there is inadequate income for retired people; on the other side there is a diminution in personal saving and an increase in state spending. It is an unhappy picture but that is the pensions crisis that we face in this country. Although this Bill does one or two useful things, frankly I do not believe that it remotely matches up to the size of the challenge that this country faces.

Baroness Greengross: My Lords, I, too, welcome the Bill. I share many of the reservations outlined by noble Lords but the Bill is very welcome, especially the measures that should help, as the noble Baroness, Lady Dean, said, to restore confidence in our occupational pension schemes, of which for many years we in this country have been very proud, and which, as we all know, have suffered very much, particularly over the past few years.
	Indeed, some of the problems that are now faced by today's pensioners result from the practice on the part of some employers at the time of large pension fund surpluses to use those surpluses to get rid of older workers by paying them off. Now those workers are suffering because the money was not enough to ensure a decent level of income in retirement. Therefore, many of the problems that older people face today are the result of problems that arose in the past which were not adequately dealt with.
	I welcome the pension protection fund and a more proactive regulator. Those measures are long overdue. Indeed, when I was still involved with Age Concern in 1995, when the Pensions Bill was before Parliament, the former chair of the all-party parliamentary group on pensioners, the Tory MP, Sir Andrew Bowden, lobbied his own party very hard indeed to strengthen pension fund boards to make them more independent and more representative. This is a matter about which all parties in the House feel strongly. I welcome the pension protection fund and I welcome very much the proposed compensation scheme for those affected by occupational scheme collapses although, as has rightly been said, much detail needs to be clarified.
	I stated in a Written Question last March that we still have very little information on people affected by scheme collapses. I hope that we shall have more such information in future. I suggest that the available money should be skewed more towards people who are closest to retirement along the lines set out in my Written Question. Like others who have eloquently stated the position, I am very concerned by the moral hazard question; that is, badly run companies deliberately under funding their pension schemes knowing that the pension protection fund will step in. There is a risk that that could happen.
	I believe that the noble Lord, Lord Fowler, hinted at the plight of those who work in a company that is taken over by another company which may replace a reasonably good scheme with one that is not of the same standard. Many such details will need to be examined carefully, particularly anything that could derail the pension protection fund and harm good schemes, whether direct contribution or direct benefit schemes. That forms part of the detailed analysis to which we shall need to subject the Bill in Committee.
	Like others I, too, should have liked to see more provisions with regard to annuities. I share the view of the noble Baroness, Lady Dean, that that matter desperately needs to be addressed. I have felt for many years that some kind of compulsory saving is necessary and needs to be introduced in this country. I do not think there is any other way of ensuring that people save sufficient money for their retirement, particularly given people's greater longevity and the need to plan for a much longer period of life, perhaps not in full-time employment as we know it but with a totally new work pattern.
	I should have liked to see more provision with regard to reform of the state pension to make any contributions that are made count, for example, by abolishing the 25 per cent rule. I should have liked to see more proposals to help older women although the Government's commitment to look at that matter in more detail is very welcome. Despite the measures that have been outlined on more flexibility regarding the lump sum at retirement, which will be of help, I share many of the reservations expressed by the noble Baroness, Lady Dean, in that regard. We really do need to look seriously at certain issues regarding women.
	I welcome the greater incentives to defer the state pension. In the future I should like to see much more radical measures with regard to state pensions so that any contributions that are made count. I have much sympathy with those who call for a really radical look at the way in which we organise state pensions and benefits.
	Some of those points have been made today. We need an all-party consensus on the matter. As a long-term policy will need to be adopted, we shall probably need a Royal Commission, or something like it—although I am never very fond of advocating such a step—to consider pensions across the board. We need to consider the issue of pensions that are based on residency or citizenship and to see whether we cannot tackle once and for all the uprating issue for overseas pensioners—people who work here all their lives and then join their families overseas on retirement. Many of those pensioners feel very aggrieved by their situation. Perhaps it is only by considering pensions overall that we can meet the needs of so many of our citizens now and in the future.

Lord Freeman: My Lords, I declare an interest as chairman of the trustees of a large industrial defined benefit scheme.
	I should like to begin by thanking the Minister's officials in the Department for Work and Pensions and in the Minister's own office for the very helpful way in which they have begun to brief noble Lords. It is very refreshing and much to be welcomed when that happens. I think that Sir Winston Churchill once said—or is thought to have said—that it was important for politicians not to let the facts get in the way of decisions. I think that it is important that we have the facts, and we look to the officials to maintain the excellent start that they have made.
	I shall not repeat anything that has been said by my noble friends Lord Higgins and Lord Fowler, and I agree very much with what they said. However, I shall concentrate briefly on four points of principle that, so far, either have not been raised or need underlining further. First, there is the regulator. I think that your Lordships will agree that the regulator must be well informed, must make speedy decisions and be efficient. I agree with what the noble Baroness, Lady Dean of Thornton-le-Fylde, said about the work done by the Occupational Pensions Regulatory Authority. It was limited by the original legislation but has helped measurably to keep trustees and pension schemes on their toes. However, the new regulator is to be welcomed. It will be proactive and will be involved not in the day-to-day minutiae of schemes but in considering risk and protecting pensioners.
	Under the Bill, the regulator will have important powers. For example, the regulator will, presumably, have prime responsibility for drawing up codes of practice for the training of trustees; for the investment management of the funds, or at least the policy for investment; and for the assessment of employer/company risk and employer solvency. I am not convinced that, in this complex field, sufficient thought has been given to the advice that would be available to the regulator. I hope that the Minister will comment briefly on that; I shall certainly table amendments in Committee. The regulator should have a small advisory committee that is unpaid but has the specific job, based on advice from the actuarial profession, employers, trade unions and, certainly, the trustees, of keeping in regular contact with the regulator and advise on some of the complexities that the regulator will face. I also hope that cross-reference will be made to the Financial Reporting Council and to the new powers under the Companies (Audit, Investigations and Community Enterprise) Bill, which is proceeding slowly through your Lordships' House, so that proper advice on the solvency of employers can be given.
	I am disappointed that the Better Regulation Task Force was consulted only informally in the preparation of the Bill. In future, it should be asked to give a formal opinion at the draft stage of a Bill, as it is sometimes too late to make amendments, once the Bill begins its progress through Parliament.
	The second point that I wish to raise concerns the Government's belief—I think that it is wrong—that the proposals are cost-neutral. The recommendations and observations of the regulatory impact assessment, to which I am sure we will return in Committee, are wrong. The Minister has said that the costs, which are certain for schemes and, therefore, for the sponsoring employers who underwrite defined benefit schemes, are of the order of £300 million per annum. The Government have said that there are two off-setting savings, but they are based on false or misleading assumptions. I shall not go into detail, as there is not time, but there are two key components of those savings.
	First, the Government say that the reduction of the inflation indexation limit—the cap—from 5 per cent to 2.5 per cent will yield savings of £370 million per annum. I cannot find the basis of that calculation in the impact assessment, but there is an inherent contradiction in it. The Chancellor of the Exchequer has set his inflation target at about 2.5 per cent, and I wonder whether the Minister has spoken to the Chancellor. If the cap is reduced from 5 per cent to the point at which the Government believe that inflation will be, there is no saving. At 2.5 per cent, the cap will be at the assumed inflation rate.
	I also believe that the other assumption is wrong. The argument is that the abolition of the minimum funding requirement will yield savings of £100 million per annum. Again, the argument is a little obscure, but it is based on the assumption that trustees will move assets from gilts and fixed-income securities into equities. Asset allocation has not been based on the impact of the minimum funding requirement; it is based on a number of actuarial assumptions, but not the MFR.
	I am sure that we will come back to those issues in Committee. It is not a cost-neutral initiative. I agree with my noble friend Lord Fowler that, because there will be an extra burden of £300 million per annum, it will mean a further shift away from defined benefit schemes or, at least, the truncation of the benefits of being in a defined benefit scheme—for example, accrual rates and so on.
	Thirdly, there is the issue of the information and advice given to employees. I rather liked the draft retirement planner that the Minister's office provided. I am sure that we will examine it in Committee. It is a new web-based mechanism by which individuals can check what their anticipated retirement pension will be 10, 20 or 30 years ahead. However, I agree with the noble Baronesses, Lady Dean of Thornton-le-Fylde and Lady Greengross, and my noble friend Lord Fowler that some form of compulsion will be required sooner or later. It is one thing to provide help and advice; it is another to ensure that people in their 30s and 40s provide enough for an expected comfortable retirement such as that of their father or even their grandfathers. If we do not do something soon, we will look back in 10 years' time and regret not introducing legislation. To use the phrase used by the noble Lord, Lord Oakeshott of Seagrove Bay, Rome is burning now: total provision by employers and employees is falling fairly significantly. That will have a dramatic effect on the pensions of our children and of the younger generation in 20 or 30 years' time.
	My final point concerns the funding of the pension protection fund. So far, the Government have worked on the assumption that it is the responsibility of the schemes and, therefore, of the employer to fund the schemes. My noble friend Lord Higgins raised an important issue when he said that that was inconsistent with the position for the pre-PPF assistance scheme, with £400 million being provided by the Government over a number of years. If the Government have accepted that some social responsibility to do something about those who have lost their pension rests on their shoulders, why should not that also imply some form of contribution to the PPF by the Chancellor, either as a lender or provider of last resort or by sharing in some proportion in the total cost?
	I look forward to Committee. I hope that the Committee stage will be taken on the Floor of the House, not consigned elsewhere. It is an important issue—one of the most important facing Parliament—and the arguments should be exposed on the Floor of the House.

Baroness Turner of Camden: My Lords, I too welcome the Bill. It is an immense document and comes just when we had hoped that pension provision and the legislation on which it is based would be simplified. However, legislation that amends existing law and builds on previous structures is bound to be complex.
	There is to be a new regulator. That must be the third since Barbara Castle introduced SERPS. For 17 years, I was a member of the Occupational Pensions Board, which was followed by OPRA. The new regulator will have more powers than either of its predecessors. I well remember the Maxwell scandal, which occurred when I was a member of the OPB. We were criticised for that, but in fact we had no power to deal with it. Now OPRA has not had the power to prevent the catastrophe that has hit many employees who were members of schemes where the employer has become insolvent. The new regulator plus the other provisions in the Bill are meant to deal with that.
	I am a fan of final salary pension schemes; they were one of the successes of the previous century. Employees fortunate enough to have been members of such schemes have in the main been able to enjoy a relatively comfortable retirement. Now it looks as though the era of defined benefit schemes may be coming to an end, at least in the private sector. Many employers are closing them to new entrants and offering, if anything at all, membership of defined contribution (money purchase) schemes, where the employee bears the risk himself or herself and has no certainty about the eventual outcome. Employers give a number of reasons for that change of policy—mainly, of course, financial.
	During the good days of high investment returns, many employers took contribution holidays. Although there were protests at the time, auditors assured us that benefits were safe. Then there was Treasury action over ACT, which led to large sums being removed from pension funds to the benefit of the Inland Revenue. Finally, low and uncertain investment returns. Unions claim, with some justice, that employers who benefited from high investment returns and took contribution holidays ought now to be prepared to maintain final salary schemes.
	Meanwhile, we have had the ASW scandal, with more than 60,000 employees from that company and others facing an impoverished future, losing what they have contributed. Something clearly had to be done about that; hence this Bill, one of the main provisions of which is the establishment of the pension protection fund (PPF). The fund has been widely supported, not only by unions but also by many employers. The Engineering Employers' Federation, for example, says that it should provide greater security for pension scheme members and could help to rebuild employee confidence in occupational schemes. It would help, I believe, to prevent a further decline in the number of defined benefit schemes. A board will be responsible for setting the funding levy, overseeing investment strategy and running the PPF itself. The scheme will cover defined benefit and hybrid schemes, where the employer is insolvent and there is not enough in the fund to buy the PPF level of benefits.
	There has been some criticism, some of which was voiced today, but, generally speaking, the whole concept has met with approval. No doubt, we will have the opportunity in Committee to discuss some of the criticisms, some of which are valid.
	Most concern has been voiced, however, about the fact that the original Bill had no provision for retrospection, so employees of ASW and other firms still had no redress. The Government have now indicated that a scheme will be introduced to provide some compensation for those employees. They propose that £400 million be provided over 20 years, but members of the Pensions Action Group believe that that is not enough, since it would produce pensions of just £6 a week for the 60,000 workers. The campaign for the scheme has been supported by the TUC, the general-secretary of which has welcomed the decision to set up the fund. But he says that the task is now to ensure that each individual who has lost out gets a fair deal from the funds available.
	There are a number of issues arising from other parts of the Bill, to which my noble friend the Minister will, I am sure, be able to respond. The new regulator has very wide powers. There will also be a tribunal to deal with complaints. It will inherit some of OPRA's powers but have some objectives that OPRA did not have. The key one is to reduce the risk of claims on the PPF. It is also to provide education, advice and guidance, and must take account of the interests of members. It will publish codes of practice. There will be an ombudsman and a deputy ombudsman. I would be interested to know how that new apparatus relates to what currently exists.
	As the Minister knows, I have for many years been a member of the council of the Occupational Pensions Advisory Service (OPAS). It was established originally as a charity, with a nationwide network of advisers able to deal with pension queries and complaints. The advisers were, and still are, all volunteers but professionally qualified. It has been very successful and eventually received government funding, which came to it via the OPB and then via OPRA. It provides a valuable sifting service before cases go to the ombudsman. I believe that there have been discussions with OPAS officials about its future, and I would welcome whatever the Minister can tell us about that today.
	Then there is the matter of pension fund trustees. I understand that the Bill provides for at least one third to be member-nominated. Attempts have been made in the other place to increase the proportion to one half; I am very sorry that that was not successful. I have always been very much in favour of member-nominated trustees. In my experience, many become very committed to their schemes. They have the advantage also that they know their companies well. Unions have for many years provided training for trustees. There is now a new requirement in the Bill for trustees to be conversant with, or have knowledge and understanding of, a very wide range of issues. The regulator is expected to produce a code of practice. No penalties are specified but the regulator apparently has power to create them.
	I am a little concerned, however, that if there is too much regulation—too many requirements imposed on trustees—people who might be suitable might not be willing to come forward. Many of the problems encountered recently in occupational pension provision have been the fault not of lay trustees but of company managements. It would be a great pity if lay trustees felt they were being discouraged and became unwilling to serve in that capacity. There is a trustees' code of practice group, consisting of lay trustees of a number of large schemes, which has devised a code of practice that has had government support. It would be a good idea if such people could be consulted; I am sure that it would be helpful to all.
	Another aspect that concerns me, which has been mentioned on several occasions in debate, is the proposal to reduce the cost-of-living cap, which currently stands at 5 per cent per annum. For the future, it is suggested, it will be reduced to 2.5 per cent. It is true that we have lived through a period of low inflation, but we cannot be certain that that will continue. If it does not, and 2.5 per cent is the maximum that future pensioners can expect, many will face a substantial lowering of standards. Since we are all apparently living longer, some elderly pensioners will be liable to lose out. It is not necessary, and, if it is a way of off-setting the costs of the PPF, it is not acceptable either. I urge the Government to think again about that.
	Then there is the matter of what happens in mergers and takeovers. Employees currently have a form of protection under what have become known as the TUPE regulations. The Government quite rightly want to ensure that protection exists in relation to pensions. However, the protection on offer is of a minimum level, with the employee entitled to either a stakeholder or other form of money purchase pension. A member of a final salary scheme is therefore likely to lose out quite substantially. It is necessary that at least comparable provision should be made available in such cases.
	The Bill concentrates on defined benefit—that is to say, final salary—schemes, and rightly so, since the main objective is the establishment of the PPF. However, it might be appropriate to say something about stakeholder pensions. I am sure that the Government would agree that take-up has been disappointing. That is because all the employer has to do is to provide access for a provider of such a scheme. No contribution is necessary from the employer. Take-up improves dramatically when the employer makes a contribution. Compulsion is often mentioned as a way of ensuring that individuals make provision for themselves—the noble Lord, Lord Freeman, has just mentioned that. Is it not about time that we started looking at a measure of compulsion as far as employers are concerned, and perhaps not only about stakeholder provision but across the board? If there is widespread concern about retirement provision, why should not employers be asked to bear at least a part of the burden?
	The issue of compulsion is being raised by the unions; after all, pensions have always been regarded as deferred pay. It is not uncommon for employees to stay with a company, even when they could get better pay elsewhere, if the employer provides a good pension scheme.
	A good pension structure must be built on good state provision. All that many people can expect is what the state pension scheme provides. The value of the basic state pension has declined, and under present policies it is not likely to increase. I understand that some people have been able to benefit from the pension credit; that is to be welcomed. But it depends on a system of means testing, which means that some people who are entitled to it will simply not get it. Moreover, means-tested benefits are expensive to administer. I still believe, as do many others, that the foundation of pension provision should be a good basic state pension linked to the wages index.
	The tax system can be utilised to make sure that if there is what the Government would regard as overprovision because of additional income from other sources, appropriate deductions are made. I do not expect the Minister to agree with me, but she will surely know that what I have just enunciated is a widely held view. Meanwhile, there is much to welcome in the Bill; no doubt we shall have the opportunity to explore it further in Committee.

Viscount Trenchard: My Lords, I am grateful to the Minister for introducing the debate. I greatly appreciated the briefing pack provided by her officials, as did my noble friend Lord Freeman.
	As this is the first time that I have spoken since the passage of the House of Lords Act four and a half years ago, perhaps I may also say how delighted and honoured I am to have received a new Writ of Summons.

Baroness Hollis of Heigham: My Lords, I ask your Lordships a question: is one allowed to be a maiden twice over?

Viscount Trenchard: My Lords, I also inquired whether I would be required to make a second maiden speech, but happily was assured that I am the same person who was here before. Although the Writ of Summons that I have received is identical to the Writ of Summons that I was previously in receipt of, I am told that this one now empowers me to attend the House, while the power of my previous Writ was somehow terminated. Anyway, I am delighted and honoured to be back here. I hope to be able to use my experience in financial services to make a contribution to the business of the House.
	Although I am currently retained as a consultant by Prudential Financial Incorporated of the United States, I must confess that I have not worked in the pensions area. My understanding of pension schemes and their regulation has developed somewhat from rather a low base over the past few days, but I still have a lot to learn.
	I should also declare an interest as a member of two defined benefit pension schemes, both operated by companies that have since been taken over by foreign financial institutions. Although I do not believe that the frequency of communications I receive from the trustees or from the administrators of those pension funds is adequate or acceptable, I feel fortunate and happy that, as far as I am aware, neither has commenced a winding-up process—or at least neither has commenced a winding-up process prior to the cut-off date of 11 June 2003 announced in another place by Mr Andrew Smith as part of the long overdue regulation making it mandatory for solvent employers to make up any deficiency in or underfunding of their pension schemes.
	I was surprised to learn that solvent employers had an option to honour their pension promises or not to do so. I had assumed that the risk of not receiving an expected pension from a defined benefit scheme depended on the solvency of the employer or its successor, not on the willingness of the employer to stand by its promises.
	As has been explained, the Bill provides for a PPF to be set up, which is intended, inter alia, to provide compensation to members of underfunded defined benefit pension schemes maintained by insolvent companies. The Government have also acknowledged that, for some, the PPF has come too late and have therefore decided to make available £400 million of public money to provide assistance over 20 years to members of underfunded pension schemes being wound up.
	The Government have, somewhat optimistically in my view, said that they will be talking to industry about what level of contribution companies may wish to make to the scheme. However, it is not at all clear which pension schemes may qualify for inclusion in the financial assistance scheme and to what extent members may benefit. Would it not also seem illogical that assistance under the scheme should be restricted to those operated by insolvent companies? That would surely be unfair and discriminatory unless the Government separately resolve to require solvent companies whose schemes are not yet wound up, but which were not caught by the 11 June 2003 cut-off date, to make good the deficit and buy out the accrued benefits for their members in full. That would not be retrospective legislation; it would simply be requiring companies to honour their obligations to their employees and not merely to the level required by the minimum funding requirement. I do not believe that companies would have any legitimate grievance should the Government make such a move.
	The noble Baroness, Lady Dean, reminded the House that many companies took pensions holidays for many years. Some of those companies got it wrong and it is not unreasonable that they should now make good their mistakes.
	My honourable friend David Willetts rightly questioned in another place on 19 May whether £400 million would be enough. I feel rather in agreement with Frank Field who said that of course £400 million is not enough. Mr Field also questioned why the taxpayer should have to fund this when a levy could be applied to the £13 billion pool of unclaimed assets, some of which have been lying idle for 100 years or more. I also agree with him that it is unrealistic to expect companies, already robbed of £5 billion a year in extra taxation through the abolition of the advanced corporation tax credits, voluntarily to offer contributions to keep another company's scheme going.
	Perhaps it would be wise to consider further how serious is the risk that the provision of public money, and money eventually made available through levies raised by the pension protection fund, will in effect encourage companies to pay less attention than they should to their obligations to ensure that their schemes are fully funded and capable of meeting their pension obligations in full. Further, the £25,000 cap will greatly reduce the relevance of the PPF to many senior managers who will have influence in determining whether or not to retain a company's scheme.
	It appears that there is very little in the Bill to encourage increased savings and improved funding of pensions schemes. I would hope the Government will consider the introduction of a pension contribution tax credit, such as has been proposed by the Association of British Insurers. Such a measure would undoubtedly encourage employers to make pension contributions. That is the key to ensuring a higher level of contributions by employers themselves.
	As my noble friend Lord Higgins rightly explained, a great deal is still unclear as to how the PPF will operate. Will it contract out its assets under management to fund managers, or will it recruit experienced individuals? How will it select appropriate fund managers? The funding arrangements for the PPF also clearly need scrutiny. There is no clear timetable for the switch from a scheme-based levy to a risk-based levy. Especially in the initial period, companies with well funded schemes will greatly resent being forced to subsidise companies with poorly funded schemes. That will surely encourage more companies to wind up their defined benefit schemes. The Minister said that at least 50 per cent of schemes will eventually be risk-based, but if a substantial number remains scheme-based this problem will surely still remain.
	There are many other matters covered by the Bill which need improvement and clarification. Other noble Lords have mentioned many of those. I hope that the noble Baroness and her colleagues in government will have an open mind and that your Lordships' House will ensure that a much better and more effective Bill returns to another place than the Bill which has arrived here.

Lord MacGregor of Pulham Market: My Lords, I declare two interests, one as a non-executive director of a life and pension company, and the other as a trustee of a pension fund. Like my noble friends Lord Higgins and Lord Fowler, I would like to start briefly with what is not in the Bill. I must reinforce that it does not deal with the biggest issues facing us on pensions. We know from earlier debates that there has been a huge decline since 1997 in Britain's present, and especially prospective, pension position, stretching out for years to come. We have to accept that the stampede away from direct benefit schemes will continue. Indeed, some of the measures in the Bill, however well intentioned, will accelerate that.
	There is nothing on the two key issues. There are no proposals at all to encourage more people to save and to encourage employers to provide better funded DC schemes more widely; I think that the noble Lord, Lord Fowler, had me in mind as one of those in the previous debate who was moving to the position of compulsion for occupational pension schemes. Nor is there anything about the black hole of underfunding in so many current occupational pension fund schemes. The Minister does not like the fact of the £5 billion ACT to be constantly reiterated, and she does not think that it has anything to do with where we are now. However, the plain fact is that, every year, £5 billion that previously went into pension funds is not now doing so. That is a major contribution to the underfunding. I hope that we will keep coming back to that.
	I do not want to make too much of the point about the massive size of the Bill. If one of the Government's key objectives for pensions is simplification, they have a very funny way of going about it. Many outside who have to deal with the Bill will feel that, given its length, a huge number of regulations will follow. It will be very important to give sufficient time for consultation with all the outside interests. I also hope that there will be sufficient time for this House to look at those regulations in due course.
	Outside consultation on the Bill has been made more difficult by the many late additions in the other place, and I want to reiterate the point made by the noble Lord, Lord Oakeshott, about Clauses 35 to 46. They have wide implications with which many employers outside the pension industry, and probably within it, simply have not caught up yet. We will have to spend a good deal of time looking at that in Committee. Even given that many of the main provisions are welcomed and supported in principle, there is a responsibility on this House to try to improve the Bill and probe on many points of concern. I too express my thanks especially to the Minister, but also to her officials, for the way in which she has been so open about the details so far. That will greatly help in our discussions in Committee.
	I welcome the pensions regulator in principle, and I also welcome very strongly the independent pensions regulator tribunal. The Select Committee of which I have been a member stressed the need for a tribunal in its recent report, and I am delighted to see it in the Bill. Will the appeal to the tribunal be only on fact or law? Will it also be on the substance of the case and the decision of the determination panel, as our Select Committee certainly thought that it ought to be?
	There are a number of issues that we will obviously want to explore in Committee, many of which have been raised already in relation to the regulator. However, I shall mention one or two. I am very conscious that, increasingly on mergers or acquisitions, pensions are a major issue in a merger itself—not only as protection for the employees, but for much wider reasons. Will the regulator be able to examine or intervene on pension issues while such negotiations are going through?
	I come back to Clauses 35 to 46, and especially Clause 39. As I read them at the moment—I have not had time to study them fully—I have several concerns. One is the danger that, as often in things that we do, we will discourage good people from taking on the role of directors or senior managers if the responsibilities, liabilities and penalties become too great. I echo the point made by the noble Baroness, Lady Turner. There is a similar problem in relation to trustees of pension funds. The pressures, requirements and potential liabilities are increasing greatly, as is the need for knowledge and training. I think that we have to be very conscious of that. One conclusion is that trustees will have to be paid, or we will not attract them in exactly the way in which an earlier Mynor's report recommended.
	Another area in Clauses 35 to 46 is the risk of the discouragement of merger and acquisition activity, venture capital operations, rescue and restructuring companies, and inward investment. We will have to look very carefully at whether Clauses 35 to 46 inadvertently have much bigger and widespread implications for industry as a whole. I am delighted and welcome the fact that the emphasis of the regulator is on key risks, with light touches on everything else. As with all regulators, a light touch converts in time to much heavier and more frequent touching. I hope that we will look at how we can avoid that in Committee.
	On the pension protection fund and the moral hazard issue, which is clearly a major topic for us, I recognise that the Government have tried to take into account the potential burden on sound companies and schemes. The question that we have to ask is whether that is enough. I was pleased to hear the Minister say that that was one of the questions on balances and costs that she wanted the Committee to examine. Clearly there are two areas to it. So far as companies are concerned, we have to ask whether we have to fix the timetable to the move to risk-based schemes so that companies know where they stand, and to ensure that the timetable does not slip. There is very clearly a temptation for that to happen. The other question raised by the noble Lord, Lord Oakeshott, is clearly important. Is 50 per cent for risk-based schemes sufficient? I go much closer to between an 80 per cent and 100 per cent move to risk-based schemes. That is another area that we will have to examine.
	There are issues that I think that the Minister was inviting us to explore on beneficiaries, too. Will the benefits be too substantial? Is it right that there be 100 per cent compensation for some, given that the compensation schemes in existence now have a limit of 90 per cent? Is there a case for saying that there should be not only benefit limits of 90 per cent for all, but a cap on all benefits as there is going to be a cap on some? Other issues arise from that.
	It is interesting and noticeable that, as the Bill stands, the Government are more generous on benefits when they are asking others to fund them than they are when they are funding them themselves. The classic example is the financial assistance scheme, where the Government will offer very meagre benefits because they are funding them. That raises the question voiced by others of the Government being the guarantor of last resort in some way on the PPF. Given the American experience, I am tempted to think that that would be necessary.
	There are many other questions on the PPF, but there is not time to explore them now. In Part 3 on scheme funding, I have one major problem, which is about what the term "technical provisions" means. The whole actuarial profession, the funding of pension schemes and everything surrounding such issues are a moving quicksand, if one can have such a thing. We have FRS 17, realistic balance sheets and all sorts of changes taking place in that profession. We need to hear a lot more from the Government in Committee on how such change is intended to be carried through.
	It is a very interesting idea to have a retirement financial planning tool. I am grateful to the Minister for saying that we can look at it, and I look forward to doing so. If it is to cover all the objectives as I understand them, I cannot for the life of me see how it can be done for £10 million in set-up costs; it will be much more complex than that. There is a more important issue. Will the Government be held liable for any gross miscalculations? I make that point because, in endowment mis-selling, a lot of complaints have been made about the original projections, which followed rules set down by the predecessor of the FSA. The interesting question is this: if it is thought to be mis-selling and if the Government make mistakes in their calculations for people's projections for retirement, will they be held liable for them?
	Let us be frank: we all know exactly what happened on the financial assistance scheme. I have a number of quotations from the Committee in the other place that I do not have time to read out, which indicate why the Government could not possibly go down the route which they have now taken. The reference to assistance is plainly a euphemism for compensation. We know that well and we know exactly why, because there is a read-across to Equitable Life and all sorts of other cases.
	We need to ask about some serious issues on that, in relation not only to how much money is coming through, but also to industry contributing. I do not think that any industry will contribute. Why should it? The decision is for the Government; it is nothing to do with industry and it is retrospective. I suspect that the Government will get nothing from that. If they try to compel employers to contribute, that would be monstrous.
	I very much support the objectives about state pensions, because they reflect the economy's need and the lifestyles that we all have now in that they encourage many more people to go on working. However, I am not sure whether a great incentive is being provided; we will have to explore that in Committee. I could say other things about that, but, given the time, I want to conclude on a different point. One matter that will be very tricky is whether the lump sum is taken into account in relation to pension credit and other issues of that sort. My suspicion is that the only answer for the Government will be to go to something like £21,000 overall so that we do not have to consider all sorts of problems about precedents, ring fencing, and so on.
	In my final point I return to the fact that the Bill does not face up to the real issues. On many arguments, there is now a clear case for saying that the state pension age needs to be raised. There will have to be a long movement ahead before the final decision is implemented; there will have to be a transitional stage. The sooner we face up to that and have the courage to do so, the better.

Lord Borrie: My Lords, first, I welcome the reincarnation of the noble Viscount, Lord Trenchard. I recall sparring with him in the 1990s on the Competition Bill, for example, and am glad that we had the pleasure of hearing him today and will, no doubt, on many other occasions.
	We all know that there are huge gaps in living standards among the elderly. The poorest are overwhelmingly dependent on state benefits and the better-off receive the bulk of their income from occupational and private pensions. I regret to say at the beginning of my speech that I disagree with my noble friend Lady Turner of Camden, because the Government have been right to concentrate state help on the poorest among the elderly by way of pension credit. Despite powerful criticism from people such as the much respected and vociferous Lady Castle of Blackburn, when she was still with us, Government policy has been more socially just by concentrating help on the poorest, rather than by giving an across the board increase in the basic state pension for everyone. That would have involved a hugely expensive total outlay, including to the better off, each of whose income would only have been minimally enhanced.
	For better off and future pensioners, whose main income comes from private sources, the Government have had to take account of the fall in public confidence in private pension provision, which they have in the Bill. Too many workers have found that their employers are no longer supporting final salary occupation pension schemes and have closed such schemes to new members. Even during the passage of the Bill in the other place some 60,000 workers have recently lost some or all of their pensions when their employers' schemes collapsed.
	In the other place MPs from all sides expressed concern at that existing problem. They could not expect and it would not have been right, I am sure noble Lords will agree, to have sought to make retrospective the pension protection fund that the Bill introduces. How can one make a protection fund—an insurance scheme—retrospective? But the Government have reacted positively with a financial support scheme, about which there are many questions to be asked, as others have said. None the less Clause 274 is an indication of the Government's realisation that something must be done for those who have already had that misfortune happen to them in the course of their working life. That has put a blight on their prospects in terms of what will be available to them when they retire.
	The central part of the Bill creates a pensions protection fund to deal with future cases where bankrupt companies are no longer in a position to pay out retirement pensions. In principle, all sides of the House would agree that that must be the right course, but it is important to recall the underlying reasons why pension funds have so often been in financial difficulties in recent years. They include major falls in the stock market, the introduction of the new accounting standard FRS 17, the minimum finding requirement under the Pensions Act 1995, reluctance of people to save adequately for retirement on a voluntary basis and, of course, increased longevity—although none of us, especially in this House, would wish to regret that.
	The world today is so different from the forecasts of the Beveridge report of some 60 years ago. The pension protection board, which will be set up by the Bill, will control its own income through what will in due course—that is a vital point—be to some extent a risk related levy. Compensation will comprise 100 per cent pension benefits for those already over pension age and 90 per cent for others, with a cap of £25,000 a year. But that cap is equivalent to the pension expected by those on a final eligible salary of some £40,000 to £60,000 a year. To have a cap at all is to put a limit on the burden placed on good employer schemes and recognises the reasons why so many schemes have been in financial difficulty in recent years.
	How much will the levy be? According to the Bill's regulatory impact assessment, it is £300 million a year, presumably passed on to employees in higher contributions. Is that an underestimate and will it be yet another factor that discourages employers from providing final salary pension schemes? The Government say that the levy and the existence of the pension protection fund will make it easier to recruit, retain and provide staff with a greater incentive to save, but that is all a matter of perception for employers and employees. The Government have a great task to perform, because if employers think—even if they do so wrongly—that the fund and the levy are overburdensome, it will discourage employers from providing defined benefit schemes. It is most important—and I agree with some noble Lords who have spoken—that the risk-based element of the levy or premium is introduced as soon as possible and is perceived to be imminent, whatever date is chosen, because employers with well managed schemes will strongly resent underwriting their weaker brethren.
	Your Lordships will wish to probe all the details of the proposals but as a matter of general principle, despite the problems of the cross subsidy and moral hazard, it is difficult to see any alternative—and no one on the other side has suggested one—to something like this insurance and protection scheme if the risks of insolvency and underfunding are to be adequately covered. The reliability of having the insurance of a pension—or the "reliability of your pension" if you are mid-career, to repeat a phrase used by the Minister—is most important.
	From my earlier incarnation as head of the Office of Fair Trading, I fear that I am something of a regulation buff and have supported the Government's recent efforts to improve regulation in, for example, the Utilities Act 2000 and the Communications Act 2003. My only connection with pension regulation was as a non-executive director of the Mirror Group, which I hesitate to mention, but in the post-Maxwell era. A brilliant rescue effort was undertaken by one of my fellow directors, the executive director and former editor of the Times, Charles Wilson. When he was managing director of the Mirror Group he worked hard to ensure that pensioners who had been robbed by Maxwell were able to recover most of their money. The later report by the eminent lawyer, Sir Roy Goode, proposed a regulatory body to help to avoid the misappropriation of pension funds in future, and, of course, the 1995 Act created the regulatory authority.
	Reviews in recent years have suggested that the regulator needs to be more proactive and to become involved before the damage is done, focusing, as the department has said, on protecting the benefits of pension scheme members against fraud and maladministration. I am not sure that I like the title "pensions regulator" to replace the OPRA. In a sense, it is a welcome simplification, but anyone outside the Westminster village may be somewhat misled into thinking that it is a one-man band. In fact, the pensions regulator is, as is customary nowadays with regulatory bodies, a corporate body with a chairman, a chief executive and at least five other members, and so on.
	I do not think that the Government have explained entirely why this recent development, which is so popular in modern corporate governance in the private sector, should necessarily be read across into the public sector so that, every time we have a regulator or a regulatory authority, we have to have the full assembly of executive and non-executive personalities, and so on.
	But one thing of which I am sure (I say this, in particular, to the noble Lord, Lord Higgins, who took a rather different view in his opening speech) is that the new wide range of powers—the repertoire of powers to cover improvement notices and freezing orders—seem to be very useful alternatives to what I might call the "nuclear option" of winding up a pension scheme. They will be useful weapons, enabling the regulator to be proportionate, if I may use a fashionable word, and to adopt action for the occasion which is appropriate to the situation. I say to the noble Lord, Lord Higgins, that that, to my mind, is not a set of draconian regulations; it is a set of proportionate regulations.
	It is commonplace to say that people are not saving enough to ensure a reasonably comfortable retirement. Related to that question is whether it is desirable for people to be able to postpone the age at which they retire. To that extent, I share the point that has just been made by the noble Lord, Lord MacGregor, concerning the age at which the state retirement pension should be paid. The Government may need, at some stage, to seize the opportunity to deal with that matter.
	As the noble Lord, Lord MacGregor, indicated, certain worries would be attached to Part 4 of the Bill, which concerns forecasts, if it involved some kind of government responsibility for the forecasts and illustrations and if those turned out to be incorrect. However, on the basis of encouraging people to save and to understand their position according to what they are doing at present, it must be a most useful proposition.
	At the next general election, the majority of voters will be either retired or within five years of retirement. No subject is more relevant to the electorate than pensions, and this Bill is one strand of government strategy that we should support.

Lord Hodgson of Astley Abbotts: My Lords, I begin by declaring two direct interests. I am a trustee of two final salary pension schemes and chairman of the trustees of one of them. They are both now closed to new entrants. The noble Baroness, Lady Turner, made a powerful plea for the importance of final salary pension schemes. My central concern relating to the Bill is that I can see no reason why I and my fellow trustees would seek to reopen either of those schemes or to provide ways for new people to join them.
	As I read the Bill, I also came to realise that I have another potential interest to declare. It is not a relevant interest at present but one that will certainly become relevant if and when the Bill is enacted.
	I am the non-executive chairman of a struggling listed UK engineering company. It is but a shadow of its former self, given the decline of the UK's manufacturing base over which this Government have so cheerfully presided. With a group of investors, we have been endeavouring to turn the company round and, to date, we have had some success. But, in relation to our current UK activities, we have a large pension fund which arises from our history. If what I understand is true about this Bill—in particular, Clauses 35 to 46—then I am concerned on two levels: first, what it means for the future of the company and its remaining staff; and, secondly, and perhaps more selfishly, what it means for directors who have, in good faith, invested and worked hard first to preserve and then, it is hoped, to make prosper a UK-based enterprise.
	By happy chance, this debate is to be followed by the Second Reading of the Armed Forces (Pensions and Compensation) Bill. It updates the pension arrangements for our Armed Forces and, indeed, replaces some pieces of legislation that are more than 100 years old. That will give us a chance to look in a little more detail at how the Government think about their own employees.
	Therefore, I must ask the Minister whether she and her officials are aware of the proposals in the Armed Forces (Pensions and Compensation) Bill. In short, they run contrary to nearly every provision which the Government proposed in the White Paper, Security, simplicity and choice, and which are enacted in the legislation before us today. There is no provision for independent trustees; there is no requirement to provide information about the scheme and the members of it; there is no requirement to consult members on proposed changes; and it is described as a non-contributory scheme when, by any fair measure of the word, it is not; and so on.
	Therefore, when the noble Baroness comes to propose the measures in the Bill, which will weigh quite heavily on the private sector, I hope that she will forgive me if I ask whether she expects government departments to live by the same standards, or is this another case of "Do as we say; don't do as we do"?
	Issues of pension policy are particularly challenging, for a number of special reasons: the language and terminology of pension provision is inevitably technical and, as such, is unlikely to commend itself to the casual reader; the outcome of any particular policy is hard to predict because of the length of time involved and the impact of unforeseen and unpredictable factors; and, finally, changes made, although perhaps only of marginal cost in the short run, can, because of the inexorable pressure of compound interest, be extremely expensive in the longer term.
	All governments are sensitive about their image. This Government have shown themselves to be even more sensitive than most, particularly about their short-term image. That is a dangerous weakness when it comes to pension policy, which does not respond well to quick fixes. My noble friend Lord MacGregor referred to the Chancellor's raid on pension funds, which the Prime Minister, playing to the gallery, felt that the stock market was high enough to sustain. That has done untold damage to pension provision. And, of course, stock markets are now below the levels which existed when this Government took office in 1997 and the Prime Minister did his bit of grandstanding.
	The noble Baroness, Lady Dean, and my noble friend Lord Fowler referred to the decision to leave unchanged the requirement to purchase annuities at fixed ages. In an era of low interest rates, that has imposed a high degree of inflexibility on individual pensioners and pensions.
	The recent announcement about a £400 million fund to compensate workers whose pension funds have failed represents another wrench on the wheel in an attempt to spin out of trouble. While £400 million is a not inconsiderable sum in itself, it must be pointed out that it is less than 10 per cent of the sum which the Chancellor is extracting from pension funds each year as a result of tax changes. More significantly, it is a minuscule sum when measured against the total assets or liabilities of UK pension funds. There must be a real danger that the Government will have aroused public expectations about what can be delivered or what is to be expected—expectations which may have to be disappointed when, as I believe will inevitably happen, the sum involved becomes vastly bigger. Therefore, if there has been a decline in public confidence about the value and role of pension funds, the Government are far from blameless.
	I should like to ask the noble Baroness about some specific issues, first, on the powers of the regulator in relation to a UK-based company whose parent is based overseas. I have had correspondence, particularly from a pensioner who worked for Joseph Lucas, a Birmingham-based, long-established engineering company, supplying the automobile and aerospace industries. The company has been taken over by a US company, which the pensioner believes is hard-nosed—one might say predatory—in its reputation. He has concerns about the drawing of assets out of the United Kingdom. I would be interested to hear from the noble Baroness the powers of the regulator in respect of controlling the departure of assets from the United Kingdom, or the powers to require restitution if assets are so removed.
	Secondly, I return to the provisions of Clauses 35 to 46 and ask for some preliminary thoughts about how the Minister believes they will work in practice. In particular, what is the relative weight to be placed on the financial weakness of the employing company, as against the financial weakness of the scheme? What limits does she expect there to be on the regulator's powers to make levies on the employer and how do the Government expect the regulator to define "fully funded" in relation to a pension scheme?
	Thirdly, can the Minister explain whether the regulator will be under any pressure to give answers on the adequacy of pension funding in due time? It is interesting that Mr Philip Green's bid for Marks & Spencer has as one of its prime pre-conditions satisfaction on the adequacy of funding of the Marks & Spencer's pension scheme. Without some pressure on the regulator to give answers to those kinds of questions, corporate acquisition and/or investment activity will be severely curtailed. Equally importantly, when a company is in financial difficulty, speed is of the essence. The regulator needs to be prepared to answer quickly if rescues are to be achieved.
	My final question relates to trustees. The Minister referred to the streamlining of the process for trustees. Does she really believe that with these new responsibilities, sufficient numbers of men and women will be prepared to come forward to serve as trustees of pension funds, or are we moving inexorably towards the emergence of professional trustees? If so, is that a good idea in the view of the Minister?
	To conclude, there is general agreement that we need to encourage individuals to save for their old age and to encourage employers to help people in that by providing good pension schemes. As I have already said, I see nothing in the Bill that will encourage employers to do that. I see it more as another, and maybe the final, nail in the coffin of final salary pension schemes.
	During the briefing on the Bill, which the noble Baroness so kindly arranged for us and for which I and other noble Lords were extremely grateful, she discussed the Bill in terms of carts and horses. It may be that the Government have designed a shiny new cart. No doubt we can discuss and explore that in Committee, but unfortunately, in my view, they have shot the horse that was to pull it.

Lord Lea of Crondall: My Lords, it is a pleasure to follow the characteristically expert contribution from the noble Lord, Lord Hodgson of Astley Abbotts. The courteous way in which he made his points was characteristic of the debate. I hope that that augurs well for the Committee stage. It is even more courteous and informal in Grand Committee than in the Chamber, but where the Committee stage takes place will be decided later.
	I begin by echoing the remarks of my noble friend Lady Dean of Thornton-le-Fylde. In the Bill we are guaranteeing people's quality of life in retirement. It is rather striking that whichever way one looks at the crystal ball, the prospects 10 or 20 years ahead do not appear to be as rosy as the retirement experience of our colleagues in this generation. That is not a matter for this Bill, although I believe it will be for another Bill after the general election. At that stage the point picked up by the noble Lords, Lord Fowler and Lord Freeman, about compulsion—we may disagree about what we mean by that—is the way that matters will go.
	Before I turn to the Bill, I want to make a point about why that is the way that we should go. Increasingly, the buy-now pay-later culture in which we live makes the idea of looking ahead 20, 30, 40 years more difficult than it was, even if it had not been for the classic phrase of John Maynard Keynes that in the long run we are all dead. That may be so, but the fact is that we want a guaranteed living standard in our retirement. A noble Lord opposite—it may have been the noble Lord, Lord Higgins, and he will correct me if I am wrong—said that of course one cannot have totally reliable forecasts, but with a final salary pension scheme one can forecast what a pension will be. It is important to point out that people want a quality of life in retirement that comes from that type of guarantee; and if they want to know that they will receive 62.1 per cent, or whatever, of their final salary, they need to be in one of those schemes.
	The real question is how we can get back to that system. Far from allowing them to decline—it is not yet a stampede—we should reverse the trend. That is a fairly unfashionable thing to say today. I do not criticise the statistical projection of the noble Lord, Lord Freeman, that in 20 or 30 years' time there will be no such schemes open to new members and that they will all be finished. I believe that is what he said in a debate in March. On the logic of wanting quality of life in retirement, we should reverse that trend. That is the challenge.
	Against that background, some noble Lords opposite have suggested that the Bill will make the matter worse. We shall have to look at that for a moment. I do not believe that the Bill can be seen in isolation from the other points that I have just made. However, one point is obvious: the move from DB to DC schemes. They are normally associated with a halving of the contributions by employers—it is a wage cut. There is also a cut in the worker's contribution when he moves from DB to DC—I am talking in averages—but the bigger cut is in the contribution from the employer.
	We are all fiddling while Rome burns, if that is the right metaphor. We must not cry crocodile tears about that and say it is all the fault of Gordon Brown when this is a trend that has been going on for some time.
	I want to mention the work of the commission chaired by Adair Turner, which I believe will bring out an extremely important interim report in September—even on present forecasts. I think we can make one other forecast today—the noble Lord, Lord Higgins, may be able to help us with it—that the Bill will probably still be under consideration in September. I suggest that that is a forecast on which one can put money.
	These days, people do not expect to have multiple choice decisions about retirement planning, which has been highlighted and epitomised by the argument about the pension protection fund and the extra scheme for Allied Steel and Wire and such like.
	It would be a helpful step forward if the Opposition, having willed the end, willed the means. From Michael Howard downwards—if that is the right expression—it has supported the pension protection fund in principle and the "why did we not get on with it quicker?" idea. If the Opposition is in favour of the fund and the levy, it should decide what sort of improving amendments—if that is the name of the game—it can put forward. Otherwise, it is hard to see how that is consistent with support for the principle.
	The trade unions are very satisfied with the success of the campaign, with which many of us were associated, to get the retrospective funding. There may be some misunderstandings about the £400 million, given that there can be money and funds in some of those companies. If the £400 million is divided by 60,000—which I think has been mentioned—and 20 years, you get a sum that is clearly not very satisfactory. All the related financial arithmetic will have to be brought out into the open. But I do not think that we will be able to dot every "i", cross every "t" and name every number in this Bill. That is just a bit of rhetoric if some noble Lords are seriously suggesting that we can. However, before we reach Clause 274 we have time to look at the financial assistance scheme.
	In helping people to look at their responsibilities for making better provision for retirement, which the noble Lord, Lord Freeman, among others, has advocated, the philosophy in the Bill is assisted considerably by some of the later parts. As a former trade union official, together with my noble friends Lady Dean of Thornton-le-Fylde and Lady Turner of Camden, I believe that if it is difficult for people to find agents to trust in this matter, if we did not have trade unions already we would have to invent them.
	Trade unions—surprise, surprise—are trusted by their members regarding pensions. They may not always be able to deliver, but I do not think that I would be contradicted by anyone in this Chamber when I say that the trade unions are trusted a damned sight more than any independent financial adviser. I shall not give a generic word about the current reputation of independent financial advisers. I hope that I have made the case for trade union involvement in the protection fund and so forth.
	Finally, an important development is the initiative of the Citizens Advice Bureau, which I think was announced in May. It is to conduct some pilots around the country in which it will co-operate with independent financial advisers to see how they can walk this difficult tightrope—the words "moral hazard" spring to mind—of giving independent financial advice through the Citizens Advice Bureau. We are desperately short of people who are trusted in the community. That initiative must also be welcomed. I look forward to the Bill progressing through Committee stage and on to the statute book as soon as possible.

Lord Hunt of Wirral: My Lords, first, I declare my interest as senior partner of Beachcroft Wansbroughs and chairman of Beachcroft Wansbroughs Consulting. I thank the noble Lord, Lord Lea of Crondall, for his kind words about the speeches made by a number of my noble friends. However, I must take issue with him on his description of independent financial advisers because the Association of Independent Financial Advisers, led by its very able director-general, Paul Smee, has done much to raise, and has sought to raise even higher, the standards followed by independent financial advisers. Of course, in a world that is as complicated as it is now, that has become very difficult, as has been pointed out in the debate.
	My plea is to espouse the cause of simplicity, particularly as regards occupational pensions. We are all concerned to protect the vulnerable in society. However wealthy an individual may be, it is a moment of vulnerability to commit to a pension arrangement that will require an organisation to be in existence several decades hence in order to pay that pension out, especially in the world described by the noble Lord, Lord Lea of Crondall; the "buy now/pay later" environment. For the less well off that is of particularly critical importance to their welfare in later years. Yet the reality of modern mixed economies is that businesses operating in dynamic markets do not last for decades.
	However, the solution does not lie in accumulating various forms of protection to deal with each new difficulty as it arises. That is the long road to complexity which, in itself, brings problems of its own. It frustrates pension take-up and can result in the very detriment that the rules are trying to cure.
	In that context, the Inland Revenue's substantial proposals for simplification of the taxation of pensions contained in the Finance Bill currently before another place are to be welcomed. I should point out that it will be an opportunity missed if this Pensions Bill does not secure a similar balance between effectiveness and the benefits of simplicity.
	So far, it is not easy to see that the mass of pensions rules for occupational schemes is being improved. We will not have the new pensions regulator until next April and we have yet to see the codes of practice on how to run a pension scheme. It must be a goal to ensure that those will be simpler and easier to understand than the rules of the current regulator, OPRA.
	Limited price indexation (LPI) is another area where needless complexity is evident, as several speakers have already pointed out. In creating the pension protection fund, the Government propose to create a new cost for all employers. It is a superficially attractive proposal by the Government to propose an offset to that by reducing to 2.5 per cent the LPI ceiling for benefits that were built up after April 2005. But consider the administrative burden that that will create and the increase in the complexity which consumers will have to master.
	In future, retiring defined benefit scheme members may find that they have built up three tranches of pension all gaining LPI, but at different rates. Those benefits built up before 1997 will increase at whatever rate the trustees choose. Those built up after 1997 will increase by price inflation subject to a cap of 5 per cent. Those built up after 2005 will increase by price inflation subject to a cap of 2.5 per cent.
	But this is relatively straightforward when compared with the LPI for money purchase arrangements. The Pensions Act 1995 also requires that members of defined contribution occupational schemes must use funds built up after 1997 to buy a pension, again subject to LPI at 5 per cent, and these too would be subject to the proposed 2.5 per cent cap from next April. However, this means that the scheme member would have to buy two different types of pension with his fund, one from amounts built up during the period 1997 to 2005, attracting index linking up to a ceiling of 5 per cent, and one from amounts built up after 2005, attracting index linking subject to a ceiling of 2.5 per cent.
	Sadly, the complexity does not end there. If the scheme member is contracted out, protected rights have set rules on increases to pensions. In consequence, this person is likely to have multiple tranches of pension, each one subject to different rules.
	I understand from the Minister that the Government are aware of the complexity of their proposals, and we have heard that amendments are to be introduced in this House to deal with it. I suggest, however, that rather than complicate LPI for money purchase schemes they should do away with LPI completely. This would be a helpful development, but a brave and courageous one. I could see the Minister flinch as I said the word "courageous". It would match the boldness of the Inland Revenue.
	Clearly, there will be some who would find the terminology worrying and confusing. For example, removing something called "protected rights" has the appearance of an important protection being taken away, but viewed from the consumer perspective, it would actually look rather different. An indexed annuity simply comes into payment at a lower base. Removing LPI from all types of money purchase pensions would mean that members would have the freedom to choose the most appropriate annuity for them in particular, whether it is level or indexed.
	This freedom will reduce significantly the number of separate pension tranches. It will make it much easier for members to understand their benefits at the outset, during their working lifetime and when they come to choose to take their benefits. By demystifying pensions saving at every opportunity, the Government will encourage people to save for their own retirement. So I think it is high time that the Government really adopted a practical approach to dealing with the pensions crisis, and simplification is a central plank of being practical.
	I look forward to seeing the Government's proposals on LPI and I commend to them the clear objective that simpler policy options will nearly always be better for consumers than complicated ones.
	As we have heard in the debate, there are many other concerns about the Bill. John Harris, chief executive of the Society of Turnaround Professionals, has expressed concern that the new provisions will impose large, uncertain and unprecedented liabilities on directors and shareholders who have done no wrong. Many share in the general concern that the pension protection fund must be implemented in such a way that it does not deter valuable turnaround business by imposing unsustainable personal liabilities on turnaround executives.
	These concerns are also shared by R3, which represents licensed insolvency practitioners who take formal insolvency appointments over insolvent companies. It, too, is very concerned that the Bill as drafted could expose administrators to a contribution liability as a result of a strategy to achieve a successful administration. It is ironic that only 18 months ago this Government passed the Enterprise Act, which introduced new measures designed to encourage and promote the rescue of troubled companies with viable businesses. There is now a real risk that this Bill will undermine those measures by strongly discouraging such rescues.
	As the noble Lord, Lord Oakeshott of Seagrove Bay, pointed out earlier, this would undermine the policies of the Chancellor himself. So while there is obviously a need for robust anti-avoidance measures to ensure that the PPF helps only those for whom it is intended, this must be carefully balanced to ensure that desirable business rescues are not blocked.
	I understand that last week the Occupational Pension Schemes Joint Working Group put this point forcefully to the Minister's senior officials. I do hope that the Minister will have had a full report and will move quickly, as of course many of the anti-avoidance measures in the Bill were added at a very late stage and the noble Baroness and her colleagues will not have had time properly to consider these problems. I hope that she will have an answer for us in this debate.

Baroness Barker: My Lords, this has been a fascinating debate. As the noble Baroness, Lady Dean of Thornton-le-Fylde, put it so eloquently, there was a time when people's eyes glazed over when the subject of pensions arose, but now it is a subject of deep interest. Moreover, we have had a demonstration of why this House is so necessary when considering matters of this kind, such has been the range of expertise among the speakers today. The noble Baroness, Lady Dean, went on to take issue with some of our comments about the length and complexity of the Bill. Perhaps more than anyone else the noble Lord, Lord Higgins, having worked through the pension credits legislation, will be the first to agree with me that the length of a Bill is absolutely no measure of its complexity. That legislation was very short, but managed to give the Financial Services Act a run for its money.
	Our problem with this Bill is not so much its length, rather it is the key areas in which it should be explicit, but remains silent. I shall concentrate my comments on a number of those areas. I do so because there is only one fundamental question that noble Lords have to answer: what does this Bill add up to in practice? At the moment, it is extremely hard to tell. Will it be, in the words of Malcolm Wicks in another place,
	"something which will come to be seen as one of the most important developments of social policy"?
	Or is it just a patchwork of reforms and regulations that will amend some of the deficiencies of the 1995 Act and which may mean that some people have a marginally better income in retirement than they might otherwise have done?
	In the presence of the noble Lord, Lord Lea of Crondall, I shall make one prediction with absolute confidence. For the next year and a half, your Lordships' House will devote an inordinate amount of time to studying the regulations and orders which will emanate from this Bill, and I believe that we will be right to spend as much time as we possibly can on going through them.
	The noble Lord, Lord Fowler, as he has done a number of times in your Lordships' House, set the political context for this Bill. He is absolutely right to say that the political importance of pensions has grown dramatically over the past few years. It is interesting to note that shortly noble Lords are to be joined by Mr Philip Gould. Every pollster knows that since 1995 the issue of pensions has shot up the list of concerns of electors in a quite remarkable way. The noble Lord, Lord Fowler, and others have pointed out quite rightly that there is growing knowledge about pensions on the part of the public, but there is too an even more swiftly growing concern about the lack of knowledge people have about pensions.
	To that end, I want to follow on directly from many of the points just made by the noble Lord, Lord Hunt of Wirral, about the necessity for simplification and clarity. There is agreement across the House that situations like Allied Steel and Wire are unacceptable, that we have to do what we can in this House to reverse the current situation. Some companies deem it acceptable to walk away from the obligations they have to their pensioners over 30 and 40 years, leaving those people with nothing. However, there is disagreement about the extent to which this Bill will in reality protect those pensioners, as well as the extent to which it will enable the other 19 million private and occupational pension holders referred to by my noble friend Lord Oakeshott over the coming 50 or 60 years.
	Other speakers in the debate have questioned many aspects of the pension protection fund, which is unsurprising given the amount of confusion during the extremely lengthy debates on it in another place. As the noble Lord, Lord Higgins, rightly pointed out, even the Minister himself was unclear: is it an insurance scheme, a pension fund or something which at times he simply could not describe? It is important that the basis of the scheme is clarified before we go any further in our deliberations, not only to enable the pensions industry to take some satisfaction from it but in order that there is an absolute certainty which can work its way down to individual pensioners.
	Our reading of the Bill is that the PPF is a pooled-fund insurance scheme; that it will be started with the remaining assets and liabilities of those pension schemes that have fared worst of all; that it is expected to continue with unspecified investment powers and, ultimately, without the backing of the Government—although I believe that my noble friend Lord Oakeshott was right to question the extent to which that would happen in reality.
	That is not a good start in life for any fund, quite frankly. For this one, in particular, there is a need to ensure that it is set up from the beginning on a sustainable basis. We on these Benches will bring forward amendments to ensure that matters such as the analysis of risk—not only for pension funds but also for employers—are included. We shall seek to limit the transitional period in order that that moral hazard is minimised.
	Much of the comment from the pensions industry has focused on the cost of the PPF. It is extremely important to determine the cost because the viability of the fund is crucial. But it is also necessary to establish beyond any doubt exactly what will be the benefits to individuals. There have been differing views about the cost to business of the proposal that those who have retired will receive 100 per cent and that those who have not yet reached retirement age will receive 90 per cent. However, there is a more fundamental question than that: 90 per cent of what? It is still not clear.
	Can the Minister confirm that, contrary to what some people have understood, the PPF will not replicate entirely the provisions of the scheme to which a person belonged—for example, that it will pay survivor pensions only to spouses, and do so to a maximum of 50 per cent, even if under the scheme from which the person came unmarried or same sex partners received survivor benefits? If I am correct, does not the Minister agree that the scheme will soon face challenges on the grounds of equal treatment?
	I am extremely concerned that there should be clarity from the outset about what the scheme will do. The impression given when it was announced in the House was that some people would have their Rolls-Royce defined benefit pensions replaced. I rather suspect a number of people will find that they get something a little more like a clapped-out Ford Cortina.
	We on these Benches have consistently said that reform of the state pension is essential. We have referred to the need to raise the level of the basic state pension and to ensure that older pensioners receive greater support. Simplification of the state pension will provide a crucial underpinning of the Bill. It is only with simplification of the state pension that employers and pensioners can begin to have a hope of understanding what their income in retirement might be.
	We have a number of misgivings about some aspects of the Bill that deal with this issue—and here I part company slightly with both the noble Baroness, Lady Dean of Thornton-le-Fylde, and the noble Lord, Lord Fowler—because we believe that the proposals on the deferral of the state pension have been rather overestimated. The introduction of a lump sum in return for deferment was heralded by Ministers in another place as,
	"a new opportunity for low and moderate earners to earn a lump sum for retirement".
	Moreover, it is stated that this would be "a choice of reward" for people in that deferral would enable them to receive a higher percentage weekly pension. But the reality is that poor people cannot afford to defer their state pension; they need it to live on.
	It is not clear from the Bill what the effect of deferral will be on a person's entitlement to pension credit. It is not clear from the Government's statement whether or not it will apply to all pensioners. The Government state that they want to make sure that the lump sum is ignored where "most" people claim pension credit, housing benefit and council tax benefit. They have not said that there will be an overall disregard. That crucial matter of detail needs to be addressed.
	Deferral is a gamble. One gambles that one will be alive to receive the pension at the end of the period of deferral. I do not agree with those who say that the whole area of pensions is really a form of expert gambling; nor do I believe that any of your Lordships would wish to kid people that there is some kind of magical certainty. We want to ensure that people make informed choices. It is therefore important that we should make clear exactly what will happen to people if they do defer and what will happen if they die—particularly if they are not married—in the interim.
	As to combined pension forecasting, we, too, have a number of reservations. The Government are already way, way behind in their estimates for provision of combined pension forecasts. Nearly six years ago the Government predicted that more than 700 employers and pension providers would take part in such a service. To date, only two pension providers and 64 employers have participated in the scheme.
	One of the most crucial aspects is that there should be a reliable means of giving people the best estimate of what their income will be. The Minister helpfully circulated a hard copy of the proposed web-based retirement planner. I realise that the programme is not yet finished and that it is not yet live, but even at this stage there is a glaring omission—the pension credit is not mentioned anywhere at all. Given that, over time, 50 to 80 per cent of all pensioners will be in receipt of pension credit, that is a huge omission.
	It is on details such as this about the interface between state and private pensions that an overall policy of increasing the age at which the basic state pension is paid, and supporting employers in maintaining older people in employment, will rest or fall. It is the nitty gritty, but it is important.
	As we are debating this issue today, I should like to ask the Minister this question. In a recent survey, one in four people expressed the hope that they would retire to Spain. Can the Minister say whether the calculations will be done in euros or in sterling?
	There are other elements of the Bill to which we give a cautious welcome. We are very pleased with some of the proposals on providing information and advice to employees. However, we think that the Government's rigidity in relation to member-nominated trustees is too limiting. We think that the proposal to have only one means that in any scheme a choice between having a member-nominated trustee who is a member of staff and who is not retired, or having someone who is retired, will have to be made. It would be rather difficult for a person in either of those two categories to adequately represent the interests of the others.
	Many noble Lords have referred to the financial assistance scheme. I should like to ask the Minister two questions. First, how did the Government arrive at the figure of £400 million?Is it a political calculation that £20 million per annum over 20 years is all that the Treasury is willing to stand? Or is it a DWP actuarially-based calculation that the average compensation payment of £340 is adequate to make up the losses of those people who have lost defined benefit pensions? Furthermore, did the calculation take into account that while some of the beneficiaries of the assistance scheme have already retired and are facing a very bleak retirement, some of them are only in their twenties? I think that will make a huge difference to the way in which the assistance scheme will work.
	I agree with others that the question of annuities will not go away. It has been ducked in the Bill. We need to go back and look at it again—and we need to do so now, well before the forthcoming debate on compulsion, which, if I am right, will come after the general election.
	We are all agreed on the scale of the pensions crisis. We are all agreed about the need to encourage employers and employees to have faith in the pensions system and to increase their contributions. We are all agreed that one of the major factors which is a bar to employers and to individuals is the lack of knowledge and certainty, as well as the lack of ability to figure out what the financial position for individuals will be in the future.
	We would be unrealistic if we thought that we could magically provide people with accurate predictions of the financial position either in macro terms or at the individual level. But there is one thing, above all, that we must do. We must preserve as far as possible the reputation of Parliament and the Government as the honest broker—perhaps the only honest broker left in the pensions field.
	The worst thing would be to overspin or oversell the measures in the Bill. I think we are all agreed that they make a valid contribution to a difficult problem. With detailed study and consideration on a non-partisan basis, the measures could be made a great deal better by the time the Bill leaves your Lordships' House.

Lord Skelmersdale: My Lords, I begin by agreeing with the noble Baroness, Lady Barker, not about sex or the pensions gamble, but in congratulating all noble Lords who have spoken in this debate on what is, without doubt, the major Bill of the Session and, arguably, the decade. The expertise exhibited in this debate, usually technically based, goes to show why we will always need a House of Lords or some other appointed advisory body to the government of the day.
	I referred to technically based expertise. Nothing was more technical than the comments of my noble friend Lord Hunt on his findings on the LPI; they were so technical that it will take me about three weeks—well into the Committee stage—to understand them, complete with a cold towel around my head.
	I should like to single out my noble friend Lord Trenchard—whom I have come to think of as my noble friend Lord re-Trenchard—and his current working experience in the financial sector. It is sometimes a great relief to have people in this Chamber who have careers at which they are still actively working.
	Perhaps I should congratulate the noble Baroness, Lady Hollis, who did her best to summarise the Bill. Quite clearly, someone in her department must have at least a Masters degree in the art of précis.
	The amount of money a person has to live on in retirement is probably the most fundamental worry of the population as a whole. It used to be something that exercised people's minds only in the last 10 to 15 years of their working life. Today, however, I find young people of my children's age beginning to worry, and they are keen, once they are settled into a job, to join the firm's—or, in some cases, the charity's—pension scheme. They now have a different worry. They read the newspapers and see stories of schemes not paying out as promised, with some of them going into gross deficit. That is what the Bill is all about.
	I referred to people having settled down in a job, and I said this advisedly. Although the portability of pensions has been the law in this area for many years, introduced, if memory serves me right, by my noble friend Lord Fowler, employees cannot take less than two years' pension entitlement with them when they transfer to a new job. That is one subject not covered in this massive Bill, nor is the desperately needed reform of state pensions, barring a minor bit of fiddling with the age extension. You are currently able to get an enhanced state pension when you retire at least one year after normal retirement age. This is more generous than heretofore and of course we all welcome it. However, for the first time ever, if you extend your working life and continue to pay into the state pension scheme, you will be eligible for a lump sum instead.
	I have to admit that I am agnostic about this proposal. A state pension has always been there to support you at a basic weekly level in your declining years. Today's workforce pays for today's pensioners. Surely the noble Baroness, Lady Dean, can see that people are living longer and that the birth rate is declining. From the Treasury's point of view, it is a good thing not to pay enhanced weekly pensions, as it no doubt is from the contributors' point of view, too. But for the pensioners, it is a temptation to spend on one last binge. It does not provide a more comfortable living to the end of your life. The thoughtful, or healthy, pensioner would be mad, I believe, to take it up.
	The Bill does not tackle the state pensions crisis, which has been caused, to a great extent, by the Government. I was brought up in the days of Flanders and Swann. At one point in one of their shows they discuss the signs of the zodiac. Michael Flanders turns to Donald Swann and asks him his star sign: "Oh, Pisces are you? Two fish swimming in opposite directions". That is exactly how I would describe the Government's policy on state, personal and occupational pensions.
	To put flesh on a remark made by my noble friend Lord Higgins with which the Minister indicated profound disagreement, on the one hand the Government, in the shape of the Treasury, are encouraging people to save for their retirement; on the other, they have come up with the minimum income guarantee or, in this case, the pensioner guarantee—a means-tested top-up for pensioners. Means-testing, by definition, is a disincentive to saving. If that is not Piscean, I do not know what is. Yet nothing in the Bill even attempts to sort out the problem.
	Occupational and personal pensions policy is equally Piscean. In the heady days of the 1980s, the pensions industry, thanks to a bubbling stock exchange and, indeed, prior contributions by employers, was awash with money, so much so that many firms were able to take pensions holidays. The noble Baroness, Lady Turner, my old sparring partner, referred to that. Not so now, when many schemes are underfunded, and new final salary schemes are as rare as hens' teeth.
	Nor does the Bill encourage schemes to be reopened, as my noble friend Lord Hodgson pointed out, due mainly to a period of declining stock market values. The FTSE 100 has gone from the high 6,000s to the low to mid-4,000s. Of course, the Minister will say that this is a cyclical phenomenon, and so, to an extent, it is. But the Government have done their part to keep the Stock Exchange depressed. Probably the worst and most damaging of their stealth taxes is the Chancellor's decision to milk the pensions industry of between £4 billion to £5 billion a year for the past six years. That is at least £25 million that the industry no longer has to invest, which would have been done mainly on the Stock Exchange. So over and above cyclical factors, there is the extra depression of the Stock Exchange. On the one hand, there is extra money for public services and, on the other, there is a limitation to the portfolios of the pension funds. This is their members' money—members who have votes at national and local elections, and who will, thanks to medical science, be needing the funds more and more, as the noble Lord, Lord Borrie, reminded us, as they will be living longer and longer. Again, I find this Piscean.
	Then there is the much mentioned anomaly of 75 year-olds having to take out an annuity by law. Contrast that with the new state pension lump sum. Like my noble friend Lord Freeman, I am extremely grateful to the Minister for providing not only the copious notes on clauses, about which I was so rude when she introduced her first Government Bill, but the additional briefing for Peers, which I assume many of your Lordships have seen. I am afraid that I have not yet assimilated volume 2, which appeared on my desk only this morning. However, Section 2 of volume 1 is a rundown of the current situation for holders of pensions. I zeroed in immediately on the first sentence, which says that,
	"57 per cent of all employees of working age are currently contributing to a non-state pension".
	That, to me, is a rather meaningless statistic. It means, first, that 43 per cent are not so contributing and, secondly, there is no indication of what it really means. How many actual employees are we talking about? It goes on to say that,
	"98 per cent of private sector employers with 20 or more employees provide some form of pension provision".
	That sounds marvellous until one realises that some form of pension provision incorporates the good, the bad and the ugly. Not only that, but it quietly ignores the many thousands of small companies that make up the vast bulk of the economy. Some, like my own, with four permanent employees, have indeed got pension schemes; but how many of them have not? After all, they are not compulsory—and many of the comments made by noble Lords have been about compulsion.
	Even before my noble friend Lord Fowler first referred to the matter, I had in my notes the question pondering whether the time had come whether we should be thinking about the matter very hard indeed. I accept that it is much more radical than the ABI's suggestion for encouraging employer contributions. I wonder, too, in the light of the concluding remarks of my noble friend Lord Hunt, whether it is rather hard for him to stomach. Certainly it would take a lot of working out.
	The noble Lord, Lord Lea of Crondall, believes that after the next election there will be just such a Bill. However, I believe that any government who introduced it would have difficulty rebutting the charge that it was yet another stealth tax. The only way in which to avoid that would be to have a reduction in state contributions to the state scheme. In the current scenario that is not very likely.
	The first 100 clauses and four schedules and Part 2 are really there just because of the bad and the ugly. The brief for Peers explains the differences between IT and OPRA, which the noble Baroness, Lady Greengross, described as a proactive regulator. I certainly accept the need for that, but we shall need to investigate in Committee its modus operandi. On the face of it, the regulator has powers that are so draconian as to put them somewhere between those of the Inland Revenue and Customs and Excise. No wonder we need a tribunal!
	I would add that it is essential for all public bodies involved in pensions to sing from the same hymn sheet. I refer in particular to the Inland Revenue, the FSA, the new regulator, the PPF and the multitude of ombudsmen in this area. We do not want a repeat of the horrific story in a recent copy of the Financial Times, which started:
	"Hundreds of wealthy investors are set to lose millions of pounds after misleading advice from government institutions led them to breach investment rules".
	I accept that some of that is journalistic hype; none the less, the fact remains that the rules are not always known by all the official bodies involved.
	In its current form, the action permitted by the regulator will be the nail in the coffin of final salary schemes—a point made by many noble Lords. Of course, I welcome the PPF and the last minute addition of the financial assistance scheme. Cynics such as me believe that we would not be discussing the Bill now had it not incorporated the latter. Details are as yet very vague, and I look forward to investigating it and establishing how the PPF will cope with having to run what appears to be a myriad of expired pension schemes, all of which will probably have different scheme rules and members' rights. How will the regulator's colleagues cope, and how will we know that they are to be competent?
	My copy of the Bill is littered with comments such as those. I anticipate that those three subjects alone will take more than three days in Committee. As the noble Baroness, Lady Dean, said, it will be days and days more before we are finished with the Bill.
	For example, like my noble friend Lord MacGregor, we have serious reservations about the financial assistance or compensation scheme, which the Government introduced on Report. It is fine in theory, but what about the practice? Since the Government introduced the scheme, innumerable questions have surfaced, such as that asked by the noble Lord, Lord Oakeshott. How was the figure of £400 million reached? Is there scope for the extension of that sum, should it be needed? How will it be divided between 60,000 pensioners over a 20-year period? My noble friend Lord Trenchard is right: what basis is there for the mention of "contributions from industry", and how will that by encouraged and structured? Why are solvent wind-ups excluded? Clause 274 is open-ended and dangerously undetailed; we shall certainly table amendments to probe those issues.
	Our second concern is with the PPF itself. We welcome the fact that there will be some form of protection and compensation for those who lose their pensions through no fault of their own. The Government have been aware of the problem of the lack of security to people in the private sector to find benefit pension schemes for a very long time. But the PPF that they have proposed have several areas that are a cause of concern for employers and employees. It is not by any stretch of the imagination an assurance that an employee will be guaranteed a full pension.
	To start with, there is the cap on non-pensioners of 90 per cent, as well as caps on other amounts; there is a lack of detail about how money will actually be distributed; there are concerns about fiddling with indexation with the reduction from 5 per cent to 2.5 per cent; and, lastly, there is the reserve power for the Secretary of State to cut benefits anyway. There is likely to be less money available under the PPF than the Government imply, and the Government are not prepared to underwrite the scheme if it proves under-funded or in crisis. As my noble friend Lord MacGregor said, that is inconsistent when the primary duty of government is to provide the basic floor of insurance for the citizen. In Committee, we shall certainly press the Government to justify some of those important areas.
	Thirdly, and in conjunction with the previous point, there is serious concern about the flat-rate levy and the transition to risk-based payments. We have all had considerable representations from organisations which insist that the levy must be risk-based from day one, irrespective of the demands of the triennial cycle which has been used to justify a delay until perhaps 2009 for all contributors to be on a risk-based levy.
	My fourth point deals with the anti-avoidance provisions introduced during proceedings in another place. Clearly there is merit in have provisions for anti-avoidance, but there have been frantic representations from the CBI, NAPF and the venture capital industry about the potentially disastrous effects of Clause 35 and the dumping of liability. This is something which has not yet been scrutinised and I am sure that we shall consider the matter very carefully.
	Time is getting on, and I have covered just a few of our principal concerns. There are many more which have cropped up during today's debate and which I do not have time now to mention in detail but which include the new requirements for trustees. I agree with those noble Lords who fear that the provisions will seriously deter individuals from becoming trustees.
	I finish by reiterating that our primary concern with the Bill is that it does nothing to encourage employers to set up or continue their occupational pensions schemes. In a recent survey of their members, the Association of Consulting Actuaries reported that a majority of firms feel the measures in the Bill will decrease occupational pension scheme coverage; fewer than one in 10 firms feels that the measures will improve pension coverage; close to nine out of 10 firms say the Bill's measures will either add to costs or make no difference. Those who have to work with the new provisions in the Bill for pensions have no confidence in the fact that the new proposals for pensions will be workable.
	All that I can say is that the Government have delivered a less than watertight Bill on the sensitive issue of pensions. We owe it to everyone to do all that we can in Committee and on Report to rectify that situation and work to improve the Bill as much as possible.

Baroness Hollis of Heigham: My Lords, I reckon that about 150 queries have been raised in the course of the debate. By definition, I can reply to about 10 or 12 of them, so, as usual, I shall write to noble Lords about the queries that I am not able to address today due to the pressure of time.
	I open by endorsing the comments of my noble friend Lady Dean about the importance of pensions and by picking up a point made by the noble Lord, Lord Hunt, that we can see pensions as being an expert gamble or an issue of trust. What we are trying to do in the Bill is to turn it from the first into the second. I agree with all noble Lords who said that the test of the adequacy of the Bill is the degree to which it addresses the issues present on the pensions scene.
	I do not want to repeat what was said by many noble Lords about the dimensions of the current pension situation. The fall of the stock market—or I should say its volatility, as it has risen a little—and its concurrence with the fall in long-term interest rates has had a depressing effect. This is a rare event that has not happened since the inter-war years. There is also the rise in longevity. I also wish to endorse the points made by my noble friends Lady Turner and Lady Greengross about the long-term impact of the contributions holiday from 1987 onwards. It has accounted for something around 30 per cent of the current deficit in pension funding and actuaries now tell us that it was probably unnecessary in terms of the 105 per cent cap. It was used to prop up corporate returns.
	I shall be very brief on the final issue before turning to the particulars of the Bill. The Benches opposite insisted that what the noble Lord, Lord MacGregor, called "the £5 billion ACT raid" contributed to the pension scenario that we now face. It was not £5 billion, it was probably £3.5 billion and it was not ACT, which is a form of payments on account, but was payable tax dividends. We all know that pension funds pay no tax. Until 1997, they were gaining a 25 per cent additional payment, or tax credit, to reflect the fact that companies already paid corporation tax.
	That meant that there was pressure on companies to increase their dividends, which might not be prudent, to gain the "freebie" of a payable tax credit. It also meant that by reducing corporation tax by £3.5 billion, the lowest in Europe, which the Chancellor did, companies were in a much healthier position to pay dividends, which is more appropriate. But in any case, pension funds are not taxpayers and I do not see why there should be an additional notional tax paid refund on top when pensions are already heavily tax privileged on the way in and on the way out compared to all other forms of savings, which are not only taxed, but are also often double taxed, as with building society accounts.
	Therefore, I simply do not accept the description of the role of ACT. I quite understand that pension funds would like a 25 per cent freebie on top of paying no tax at all. However, if one does not accept that that is legitimate, except in so far as it artificially enhances the value of funds, I hope noble Lords will agree that reducing corporation tax and strengthening companies is a much healthier way to grow dividends for the future.
	I turn to today's debate. The contributions were made in three parts, rather like Gaul. The first were the sections of speeches that welcomed contributions in the Bill. I regret to say that that will comprise the shortest part of my speech this afternoon. The second included issues that aroused disquiet—for example, PPF, focus on business, trustees and some smaller points—which I shall mention if I have time for them. Finally, I shall comment in response to some of the wider issues raised by your Lordships about what is missing from the Bill. I shall deal with what was welcomed; then with what seems to have aroused particular disquiet to see whether I can address some of the concerns; and then make some broader comments on what is missing from the Bill.
	Those elements that were welcomed included scheme-specific funding. I am pleased, as it has been widely welcomed across the industry. A pension regulator with teeth was pretty much welcomed. There were some questions about its structure, based on the Higgs report of last year, and whether it will have an advisory committee. It will certainly need professional advice and will expect to make use of the expert risk panels that currently exist. In the briefing pack, there is information about parliamentary control and annual reports to Parliament. Some questions were raised about investment strategy. We expect it to be in the public domain but I do not think that it is appropriate for Parliament to control investment strategy any more than we would now expect the Chancellor of the Exchequer to take back control of interest rate policy from the Bank of England. There are plenty of accounting devices from the determinations panel to the independent tribunal, which will bring the pension regulator into proper control. The regulator has been welcomed, particularly by my noble friends Lady Dean and Lord Borrie. OPRA did good work but it needs strengthening and it is the first to recognise that. The additional weapons that the pension regulator will have and its capacity to assess risk will secure the position of funds before they come to topple-over point of possibly going into PPF.
	There was quite a lot of welcome for state pension deferrals and the alternative of the lump sum. The noble Baroness, Lady Barker, asked who would benefit from it. Our current information on deferrals is that most people who take deferrals are not the wealthy who can afford to carry on but tend to be women who, because of the discrepancy in retirement ages, tend to carry on working for a couple of years longer than basic state pension age in order to make their retirements coincide with those of their husbands, whose retirement age is later. These patterns of behaviour may change with lump sums and the like but, so far, it is certainly clear that deferral and the lump sums will be very largely appreciated by the lower paid and often by women.
	In his comments, the noble Lord, Lord Hunt, welcomed our proposal to reduce indexation on DC schemes. He asked me to be brave and bold. My opening speech included the comment that we will remove indexation from money purchase arrangements back to 1997 by an amendment in Committee. We actually believe that by amendment or regulation we may be able to go further and remove all indexation of protected rights of money purchase schemes back to the beginning of personal pensions in 1988. I think that the equivalent of bouquets are being thrown in the direction if not of me, of the Box. I hope that that will be a significant simplification on the one hand and an increase in choice for those turning money purchase pots into annuities on the other. I hope that I can live up to the outline here. That is an important announcement and I am happy to make it today.
	Pension forecasting and informed choice was also welcomed, as was CETV, about which the noble Lord, Lord Skelmersdale, was concerned. Clause 253 will show that people who have them can go for immediate vesting instead of having, as now, to wait for two years. This is of importance to mobile people and to women.
	Those were the matters that were welcomed. We now come to the much more substantial section about which there was disquiet in your Lordships' House today. The three matters that I want to address in particular are the PPF; the burdens on business issue, that is the costs issue which brings up LPI; and some of the issues on trustees raised, in particular, by my noble friends. Those are the big issues, although there were some smaller ones.
	I was asked whether PPF was a pension scheme or an insurance scheme. It is a compensation scheme. In response to the question of the noble Baroness, Lady Barker, about what it will cover, it will, broadly speaking, produce up to 100 per cent for existing pensions and 90 per cent for deferred pensions of the benefits that have accrued in the schemes of which people were originally members. As the noble Lord, Lord Higgins, will recognise, that situation is no different from any other deferred pension when moving jobs and leaving behind rights.
	There was a lot of concern about the risk-related levy. I entirely accept that it is important in order not to produce the problem of the last man standing. I accept that it will be technically complicated and that it will have to be built with consent. That is why there is the roll-out period. We are trying to get it right and get it fast and there is obviously tension between those two objectives.
	However, we expect that, after year one, we will be able to go into the risk-related roll out. Companies will be able to bring themselves into the risk-related levy earlier than the usual revaluation, if they so wish. We will not be setting down the formula, but our expectation is that at the point of "maturity" of the roll-out process the PPF could be shaping its levy so that 80 per cent of it is risk related and 20 per cent is flat rate, which is almost opposite to the position in the United States.
	That brings me to a point on the United States to which there are a couple of cross-references—

Lord Higgins: My Lords, before the noble Baroness leaves the point she was just on, I just wanted to say that much of the risk on roll-out involves the company becoming insolvent. That does not need to be delayed over a long period. The other aspect of it is based on the valuation of the assets. However, many pension schemes, including the one with which I was involved, do evaluations other than in the three-year period. So there is no real reason why it needs to be staggered over such a long time.

Baroness Hollis of Heigham: My Lords, I am perfectly happy to take this away and see whether we can expedite it. However, in consultation with the industry, we believe that people are most comfortable with this timetable. I nevertheless take the point: if we can expedite it, we should.

Lord Oakeshott of Seagrove Bay: My Lords, the noble Baroness mentioned consultation with the industry. That is certainly not what the National Association of Pension Funds believes. I think that that is very important.

Baroness Hollis of Heigham: My Lords, whatever the National Association of Pension Funds believes is important, but whether its belief is correct is another matter. The point that I am making, as noble Lords will see in their briefing packs, is that sophisticated companies that have the sort of assessments to which the noble Lord, Lord Higgins, refers can bring themselves into the valuation procedure ahead of the triannual valuations. Therefore, companies are not forced to remain towards the end of the period; they can bring themselves forward if they wish. That option is available to them.
	I should like to make one point on the USA comparison that has been made and the possibility that that presages bad news. The fact is that in the United States the levy is set by Congress. The levy has not been increased since 1991, not even to deal with inflation—despite inflation and market instability. It is also worth emphasising that the 10 largest claims in the United States amounted to two thirds of the liability. Five of those were steel, four were airline companies and the other was Polaroid. The situation is not the same as that in the UK.
	I was pressed by the noble Lord, Lord Oakeshott, and, I think, the noble Lord, Lord Freeman, on whether the Government should stand behind the PPF, and to say what sort of scheme it is if the Government will not stand as its guarantor. We are seeking to ensure that marginal companies are not encouraged to enter into what we would all accept is moral hazard behaviour because they know that the Government will stand as guarantor. I believe that there is a similarity to the case of asbestos. If companies knew that the Government would pick up the bill for every asbestos claim, what inducement would they have to improve their health and safety practices in relation to asbestos? That is the point. If we want companies to produce the best possible standards, they themselves will have to act as their own moral policemen across the industry. If the Government picked up the bill, we could be sure that individual companies would not. That is not the way in which to go forward with a pension protection fund.
	The noble Baroness, Lady Greengross, asked about the moral hazard of bad companies. We have tried to build out that hazard. I do not think that I have the time to go into the detail, but, basically, for companies to come under the scheme, they will have to be insolvent and the scheme will have to be underfunded. If the company is insolvent but the scheme is funded, it will be able to buy full annuities. Those are the tests. Without them, too many companies would seek to come within the PPF as a better buy purchase. That is exactly the sort of moral hazard we cannot afford to sustain.
	On the adequacy of funding, I do not think we should confuse the nature of assets for funding with cash flow. The scheme will bring in assets from companies that are folding, however limited those assets may be. It will also have the levy and, ultimately, the power to raise loans. That £300 million a year will be over the lifetime of the fund, in contrast to the financial assistance scheme, which is £400 million over 20 years.
	My noble friend Lord Borrie very effectively addressed most of the points on the financial assistance scheme. We could not have made the PPF retrospective; that would not have been fair. If one had gone for unclaimed assets—one of those siren calls—one would have had to raid privately owned assets, which would have been questionable. I also do not think that it would have been accepted as an additional levy on industry across the board.
	I believe, therefore, that members of those defaulting schemes have nowhere else in these particular circumstances to go for compensation. Compensation it will not be; but assistance, at least, it will be. The Government have no legal liability, but we do accept a moral argument here about decency. That is why we have tried to assist as we are doing. I shall have to ask the House to indulge me until I can provide further details. We will be publishing our best statistics as soon as we can.
	The second big concern was on the cost-savings ratio and, in particular, whether the amount of savings generated by the reduction in LPI would be sufficient to cover the costs of things such as the levy. I realise that time is pressing, but perhaps I should spend a moment on this issue.
	At present, although we expect inflation to run at 2.5 per cent, with a tolerance over time of about 1.5 per cent on either side, companies nevertheless have to hedge against the possibility of paying up to 5 per cent indexation each year. The GAD has calculated that this will reduce the cost of indexation from about 23 per cent of total contributions to 19 per cent of total contributions—the 4 per cent, multiplied by the £12 billion of employers' contribution, brings us down to £480 million, and 75 per cent take-up of that is £370 million. That is how we reach the sum which the RIA says industry should be saved. Within that, industry can offset the cost of what are, I think, the quite modest charges on the pension protection fund. We expect the average levy to be about £20 per member—not a sum that I would think would determine the solvency or otherwise of schemes.
	My noble friend Lady Turner asked about the downside for people denied as a result of price indexation. It is true that over time the total loss for men and women in the schemes may be about 2 per cent over the course of their retirement.
	The first big issue was about the pension protection fund and the second about costs and savings, in particular the costings behind the LPI reductions and the way in which they generated the savings necessary for the fund. I think the third issue is the absolutely legitimate views and concerns about the role of trustees and whether they will be overburdened. That issue was raised by my noble friends and by the noble Lords, Lord Hodgson and Lord MacGregor, and other noble Lords. There are three points. First, trustees already need knowledge and understanding, and the best trustees are already compliant. I have full figures showing that about 80 per cent of companies and 95 per cent of mixed schemes already send their trustees for training. That already happens; whether that is enough training is another matter, but it is happening.
	Secondly, the provisions say "relevant knowledge and understanding". We do not expect people to be legally qualified, but we do expect trustees in future to have a good basic understanding of the major issues including funding and investment.
	Thirdly, the regulator's approach will be educative, not punitive, with a code of practice offering advice on how trustees can attain the relevant knowledge and understanding. I have put some relevant information in the pack and I am happy to send noble Lords additional information about the sort of trustee training we would expect companies to ensure they receive to discharge their duties. The issue of when a trustee should be paid, raised by the noble Lord, Lord MacGregor, is open to the individual funds to determine as they consider appropriate. We would not wish to legislate at this point on the subject.
	Moving from those three big issues, I was pressed by several noble Lords on the Benches opposite—the noble Lord, Lord Hodgson, I think, and the noble Lords, Lord Higgins and Lord MacGregor—on Clauses 35, 36 and 39 and the CBI's concerns that the moral hazard provisions are too widely drawn.
	It may be worth my putting a few remarks on the record which I hope will be of some assurance. The CBI supports the proposals in principle. The clauses have to be wide to ensure that the regulator can effectively tackle avoidance, but the regulator will be able to act only where avoidance was the primary motive for a decision. The regulator will be able to issue a contribution notice under Clause 35 only where an act or failure to act was deliberate and designed to avoid pensions liabilities.
	The regulator will be able to issue financial support directions only in prescribed circumstances. Those involved in business transactions, corporate restructuring or investments will be able to seek confirmation in advance that the regulator will not impose a contribution notice on them. Officials are working with industry to provide examples of how these new powers will work and how they will be exercised. I hope that the noble Lord, Lord MacGregor, and others who have raised this issue will take some comfort from that.
	My noble friend Lady Turner asked about OPRA. I have no reason to think that that body will not continue. It is a valuable body and I hope that it will continue. Points were raised about TUPE by one noble Lord. It might be better if I write to the noble Lord on that point. The noble Lord, Lord Freeman, referred to the Better Regulation Task Force. That body was consulted during the consultation on the Green Paper. However, I hope that the noble Lord will work with us if we need to improve the matter further.
	The noble Lord, Lord MacGregor, asked whether we could raise the issue of mis-selling on the retirement planner. We do not seek to give financial advice but information from which people will be able to make their own deductions. However, I take the "fair cop" point about pension credit; that was well made. I shall find out why that is not included. The noble Lord, Lord MacGregor, also referred to the plain English technical provisions. The term "technical provisions" is used in the EU directive. It requires schemes to have appropriate assets to cover technical provisions and to put a recovery plan in place. We understand that to mean the amount of assets a scheme needs to hold now on the basis of the actuarial method and assumptions used in order to pay its accrued pension commitments as they fall due in the future. In calculating this amount the scheme actuary will be required to use assumptions about factors such as future investment returns and life expectancy that have been chosen prudently. If we can enlarge on that in correspondence which I shall circulate to your Lordships, I am happy to do so. Given the time that is available to me, that seems to be the most helpful thing I can say.
	The noble Lord, Lord Hodgson, asked about the Armed Forces Bill. So far as I understand it, the Armed Forces pension fund is unfunded. Unfunded schemes do not come within the remit of this Bill. Therefore, his concerns should not be raised in this context.
	Various accusations were made regarding what was not in the Bill. The four big ones concerned annuities, compulsion, state pension age and the reshaping of state pensions. Strong arguments were advanced today by noble Lords on all sides of the House, which I respect, about the role of annuities and about the degree to which taking them at the age of 75 could be seen as discouraging oversaving, which is what you might want people to do when they are younger. However, I ask your Lordships to bear in mind that it is not a problem that affects many people. To float off the amount of money you would need to protect yourself against income related benefits and so on, you would probably need at least £100,000. The average pension annuity is only about £25,000. Some 95 per cent of people draw their annuities now before the age of 70. There is no reason to think that they seek or need extended choice.
	I accept—the point was well made by my noble friend Lady Dean—that with increasing movement towards DC schemes, this will be an increasing and not a diminishing issue. However, at the end of the day, I ask your Lordships to consider what you are arguing and whether you are willing to strip away all tax privileges and the like; that is, that people should have the right to be able to save through their pensions to gain the tax concessions without any of the constraints to ensure that that money is spent on pensions. There is nothing to stop everyone of us in this House tonight saving for our old age in any other way we see fit without necessarily expecting a cross-subsidy from other people possibly less well off than ourselves in the form of tax privileged entry into pension annuities.
	As I say, there may be other issues that we can take up in future debates, but essentially the reason people do not wish to defer the measure until the age of 75 is because they wish to be able to pass on a tax privileged asset to their heirs. They can save in other formats but those do not enjoy the tax privileges that people currently enjoy with annuities.
	I am sure that we shall revisit the issue of compulsion. The climate is changing on that matter. I do not think that five years ago we would have heard the arguments that we heard today. We await the report of Adair Turner. The debate on that matter, rather like the debate on annuities, will not go away and will increase in significance and importance over the next couple of years, as my noble friend Lord Lea said.
	Accusations were made that we are not reforming the whole of the state pension system. I plead guilty to that. We are not reforming the whole of the state pension system, nor are we raising the state pension age. That would bear too unfairly on the poorest people in the poorest jobs who have the lowest life expectancy. Two-thirds of men and a half of women have already left the labour market before they reach basic state pension age now. The issue is to keep them in work in their 50s and 60s, not to extend their working years longer still. I ask noble Lords not to press that matter further.
	We all share the objectives of security, stability and the building up of trust. We all accept that the Bill will need, and will incur, scrutiny. I emphasise that it has emerged after elaborate consultation exercises and that the regulations that will flesh out so much of the detail of the Bill will in turn be subject to consultation. The debate will not end with the completion of the passage of the Bill through your Lordships' House before the Queen's Speech. I appreciate that your Lordships have been grateful for the additional information that the officials produced. It involved a lot of work. I am glad that noble Lords opposite and my noble friends thought that that was a worthwhile exercise. We are all in this together trying to ensure that we build a better basis for the health of occupational pensions in the future.
	Like others, I am appreciative of the courteous nature of the debate and the respect for information. Like everyone else, I am confident that together we shall ensure that the Bill will leave this House, if not changed, at least to your Lordships' satisfaction.
	On Question, Bill read a second time.

Multiple Sclerosis

Earl Howe: rose to ask Her Majesty's Government whether the risk-sharing scheme, designed to allow eligible patients with multiple sclerosis to have access to beta interferon and glatiramer acetate in controlled trials, is working satisfactorily.
	My Lords, I need not, I think, spend too much time setting out the background to my Question, but a few words of introduction may help.
	In 1999 the Department of Health and the Welsh Assembly asked the National Institute for Clinical Excellence to appraise beta interferon and glatiramer acetate as treatments for multiple sclerosis. NICE concluded in July 2000 that routine use of these treatments could not be recommended, but following a reappraisal, it issued guidance in early 2002 that confirmed that the therapies were clinically effective for certain groups of patients but that sufficient evidence of long-term cost effectiveness was lacking. Shortly after this, the Department of Health announced the MS risk-sharing scheme. This is a scheme whose aims are to enable all eligible MS patients—that is to say, patients who meet the guidelines of the Association of British Neurologists—to receive treatment with disease modifying drugs and for the NHS to acquire these drugs in a manner which could be considered cost effective.
	I am sure I was not alone in my utter dismay at the NICE determination in 2002. Nevertheless, the risk-sharing scheme seemed to me then, as it does now, a brave and welcome move by the Government to try to square the circle. The targets set under the scheme were for between 7,500 and 9,000 eligible patients to receive treatment with disease modifying therapies by November 2003, with 5,500 to 7,000 in the formal monitoring cohort. Clinical trials of their very nature last only two to three years, which means that the long-term benefits of MS treatments cannot be discerned with any accuracy from such trials. MS evolves over decades and it is therefore reasonable to evaluate the costs and benefits of the treatments over a period of 10 to 20 years. Any shorter period than that and we run the serious risk of failing to uncover possible long-term benefits. Also, the cost-effectiveness of the drugs will appear to be commensurately lower.
	The risk-sharing scheme therefore represented a huge opportunity not just to demonstrate the long-term benefits of these therapies but to help real patients. The international comparisons are stark. In 2002, the proportion of MS patients in the UK receiving disease-modifying therapies was 6 per cent. In the EU as a whole, the figure was 28 per cent and in the United States it was 46 per cent. One of the looked-for benefits of the scheme was to redress that imbalance.
	Unfortunately, the whole process got off to a very slow start. In many areas there was simply no infrastructure to get it off the ground—clinic space, administrative support and appropriately qualified clinicians and nurses were simply absent. There was a large backlog of patients to assess, and quite a number of PCTs did not have a precise idea of how many patients there actually were. Even one year into the scheme, many qualifying patients were still waiting for the drugs to which they were entitled.
	The main reasons were stretched PCT budgets; systems that had not really been well prepared to cope with administering the scheme; and over-burdened neurologists struggling to keep up with the workload. However, by late 2003 progress had been made. At the end of October, about 7,000 patients were being treated with a disease-modifying therapy—some 500 below the original target. Nevertheless, more than 3,000 people had been enrolled into the scheme over the 18 months from May 2002. Fifty-three new specialist nurse posts had been created, and there were 65 prescribing centres for multiple sclerosis around the UK, since increased to 67. All that is positive, but it really is not positive enough.
	We are now more than two years into the scheme. After this length of time, we really would expect to see it working in the way that everyone had been hoping for, but I am sorry to say that it is not. The scheme was the subject of a formal ministerial direction. It is therefore mandatory. The detail of the scheme has the status of NICE guidance. Dedicated funding was made available to PCTs to implement it. Despite this, it is clear that many PCTs have relegated the scheme to a box marked "low priority".
	Of the 67 prescribing centres, one—namely, Truro—is still not prescribing disease-modifying therapies at all. Of the rest, Aberdeen has not begun to recruit to the risk-sharing scheme, Leicester and Gloucester have stopped recruiting because of resource constraints, Swansea has not started, although it looks as though it may in the next couple of months, and North Staffordshire has a very long waiting list. Most serious of all is what appears to be a giant misunderstanding about the scheme targets. It is clear that some PCTs are under the mistaken impression that once the target for recruitment to the monitored cohort has been met—that involves 5,500 to 7,000 patients—the shutters can come down and no new patients need be given the therapies.
	We understand from the Government that the patient number targets that were originally set are likely to be met later this year—about a year late. That target cannot be, and was never intended to be, the end of the story. This is a programme that places an obligation on PCTs to continue funding new access to treatment for 10 years. That obligation must be met for the sake of all MS patients.
	One of the prime bottlenecks in rolling out the risk-sharing scheme is the chronic shortage of neurologists. In the UK, we have only one neurologist for every 177,000 people. In France, the ratio is four and a half times better—one in 38,000; in the Netherlands, it is nearly seven times better; and, in Denmark, it is eight times better. We are miles behind the bare minimum ratio recommended by the Association of British Neurologists of one in 80,000.
	The key point here is that getting into the risk-sharing scheme in the first place depends on being seen and assessed by a neurologist. A lot of patients cannot get to see a neurologist at all. Someone in that position must resort to their GP, who almost certainly does not have any in-depth knowledge of MS and is unable to assess them for their eligibility to receive the therapies. The potential tragedy of the situation is this: should an MS patient suffer a significant delay in access to treatment, he or she may be unable to benefit from it. The earlier we treat someone with MS, the more effective the treatment is. If someone suffers a progression of his disability, it may be irreversible, and the window of opportunity is lost. The risk-sharing scheme may have helped to iron out part of the postcode lottery of funding for drugs, but there is still a considerable regional variation in access to neurologists. In 2001, the Emergency Medicine Journal highlighted those wide regional differences.
	In 2004, the percentage of MS patients in the UK receiving disease-modifying therapies is still only 8 per cent. In the EU as a whole, it is 35 per cent, and in the United States, it is 50 per cent. Let us, for the sake of simplicity, ignore the United States. What on earth can count as a satisfactory rationale for the gap between ourselves and the rest of the EU? There is no such rationale. The monster gap calls into question the estimates of the number of patients eligible for treatment under the ABN guidelines. It suggests that a great many more people might benefit from the therapies than actually receive them.
	The European Parliament recently published a report on discriminatory treatment afforded to MS patients in the EU in consequence of a petition submitted by a UK citizen, Louise McVay. There are some pretty damning conclusions in that report, on which the Minister's comments would be welcome. On the UK, it says that the risk-sharing scheme,
	"represented a big step forward though it has not managed to resolve the therapy-related problems experienced by the majority of MS sufferers even today".
	It continues:
	"the disparities between the types of care and support available are much too great both within and between the member states of the Union. This must be remedied by raising the level of care provided across the board, bringing about equality of access as a clear objective. With free movement of persons recognised as a binding principle of the Union, better provisions must be put in place to enable the disabled person, including MS sufferers, with equal rights to treatment in all EU states".
	The denial of healthcare to people with disabilities is described in the report as,
	"a fundamental breach of their human rights",
	impacting,
	"disastrously on an individual's ability to work, on his or her family life, freedom of movement and integration into society".
	The designated therapies are recognised as making an "enormous difference" to sufferers and the enhancement of their lives. Securing best practice for equal access to therapies and treatments for people with MS should become a,
	"principal objective to be obtained by all health authorities in the European Union".
	In each member state, there should be,
	"co-ordinated programmes designed in conjunction with the World Health Organisation".
	What official comment does the Minister have on those conclusions?
	We ought to be getting a regular progress report on the number of patients receiving MS therapies within the formal monitoring arrangements. I should be grateful if the Minister could tell us what the current number is and how many patients have started receiving treatment since the inception of the scheme. How many patients are on the waiting lists for formal assessment?
	It is not good enough for the Department of Health to adopt a laissez-faire stance on regional variations. Strategic health authorities need to remind PCTs of their statutory responsibilities. Above all, they should stress that the risk-sharing scheme is not a clinical trial about the efficacy of MS therapies; rather it is a study aimed at reducing the uncertainty around previous estimates of their cost-effectiveness over the long term. What action does the department plan to take to ensure that, when the monitored cohort has been recruited, disease-modifying therapies continue to be prescribed under the scheme? That is vitally important. PCTs need to be made aware that the time has passed for the "wait and see how it goes" attitude before treatment is started.
	This is not a low-priority matter in any sense. Real patients are suffering as a result of systemic blockages, inadequate resourcing and, I think, basic misunderstandings. That situation cannot and must not go on.

Lord Clement-Jones: My Lords, the noble Earl, Lord Howe, has made a very powerful speech. He is to be congratulated, not only on giving us the background to some of the problems associated with the risk-sharing scheme, but on initiating the debate in the first place. I hope that the Minister will forgive me if I go over some of the same ground covered by the noble Earl.
	Around 85,000 people in the UK have MS. Fifty people, usually between the ages of 20 and 40, are diagnosed with the disease every week. MS is the most common disabling neurological disorder which affects young people in the UK. It affects three women for every two men. The noble Earl, Lord Howe, has reminded us of the history of the issue, which he set out very clearly.
	At the time of its publication, many of us expressed considerable criticism of the NICE cost-effectiveness appraisal, which was based on short-term data and short-term benefits. Many of us raised questions and continue to do so about the methodology used by NICE, which, in the case of glatiramer acetate and beta interferon, seems significantly in doubt. That is not the case in many of the other appraisals that NICE has carried out. The reason is that the benefits of disease-modifying therapies in MS stretch well beyond the short term. As the noble Earl described, it can take 20 years for the benefits to be taken fully into account. But the NICE methodology could not, or would not, take that into account. The noble Earl said that that was distressing; it was certainly distressing, and in some cases shocking.
	Many of us appreciated very much the Government's rather creative approach when the risk-sharing scheme was set up. It was designed to allow access to treatments, such as beta interferon and glatiramer acetate, despite the NICE appraisal not having accepted their cost-effectiveness.
	As early as 2002, problems were identified with the scheme. I have been reminded that in autumn 2002 the MS Society and the MS Trust commissioned opinion leader research to gain an accurate picture of public health bodies' progress in implementing the MS risk-sharing scheme. They set out numerous issues and problems, not all of which, by any means, have been tackled in the mean time. That is the aspect on which many of us wish to probe the Government and call them to account. Having set up such a scheme, raised the hopes of so many MS suffers and, for the very best of motives, found a creative way round the lack of a positive NICE appraisal, it is incumbent on the Government to make jolly sure that, in the almost two years since the survey, they have tackled the problems.
	In February last year an article published in the British Medical Journal put it in general terms. It stated:
	"The scheme has several scientific and practical problems that we believe limit its ability to improve the care of patients in the long term".
	That seems a fairly sweeping statement. Administrative problems, from serious staff shortages to confusion over how to deal with the backlog of patients in some areas, have plagued the scheme from the start. In some areas the scheme was significantly delayed, as we heard from the noble Earl, with some clinicians concerned that MS patients were suffering as a result. Waiting lists have been long, and, as we know, some patients are still waiting to clear them in a number of areas.
	One of the key points that the noble Earl made was on the shortage of neurologists. The current figures for neurologist numbers are quite dramatic—one in 177,000, with a proposed modest increase, in an extremely cautious approach by the British Association of Neurologists, to one in 80,000. But, compared to the continental figures of one in 25,000 and one in 35,000, we have a second-rate situation that needs to be tackled. When an MS sufferer cannot access a neurologist within a certain amount of time, as the noble Earl pointed out, he or she may miss out on the risk-sharing scheme if the disease progresses.
	The shortage of personnel contributes to regional variances in prescribing and in medical access, although one of the objectives of the risk-sharing scheme was to eliminate the postcode lottery. Access to specialist care is lacking; patients are dependent on GPs, who, despite their best efforts, are not equipped to handle all aspects of such cases and certainly do not have the specialist knowledge of a neurologist. Clearly, the scheme has stretched PCT budgets and processes, demonstrating in another setting how ill-equipped PCTs are to deal with conditions affecting relatively small percentages of the population. We debated specialised commissioning not too long ago. Even the Health Minister in another place, Mr Hutton, has admitted that specialised commissioning is not going as well as it should in the current circumstances, with consortia of PCTs. The same is very true of the situation with PCTs and multiple sclerosis.
	Many PCTs are treating MS as a low priority, although, as the noble Earl has pointed out, there is a mandatory requirement to fund medicines under the risk- sharing scheme. Funding levels also vary between regions, pointing continually to the problems with addressing specialist care at PCT level. It is clear that the PCTs are not treating specialist conditions as a priority.
	The noble Earl, Lord Howe, gave figures on the use of disease-modifying therapies. We have one of the lowest percentages in Europe. In other countries, 20 to 30 per cent of MS sufferers are on such treatments. The UK is well behind the curve on giving people access to those treatments. The importance of DMTs cannot be overstressed, because rather than purely managing MS, they tackle it, making a huge difference to patients' quality of life. The noble Earl graciously eliminated from his calculations the US, whose figures are staggering compared to those in this country. We are nowhere near the 10 per cent mark, and we have had two years' experience.
	We have heard about the assessment centres. Yes, they have been set up, but we should ask why all of them are not prescribing DMTs. It seems quite extraordinary that Truro stands out as the lone exception that fails to prescribe.
	Again, some PCTs seem to be under a misapprehension that once recruitment targets for the risk-sharing scheme are met they can stop recruiting new patients into the scheme, whereas of course they have an obligation to fund DMTs for 10 years.
	I very much hope the Minister will address the single most important question to reassure MS sufferers and the patient organisations involved, that when recruitment to the monitored cohort has finished, which is likely I understand to be towards the end of the year, those PCTs which do prescribe will not cease doing so. That is a very important reassurance that the Minister can give in this debate.
	Generally, the Department of Health and the NHS should be doing a much better job in getting the correct information to those at local level who are responsible for daily implementation of the risk-sharing schemes. Some PCTs still do not believe that they have an obligation to provide these treatments to all eligible patients and others are still under the impression that these treatments are not clinically effective.
	It seems to me that the responsibility of getting the correct information to PCTs must be firmly laid at the door of the department and SHAs. It is very important that prescribing information and eligibility criteria needs to be communicated clearly to GPs and specialists responsible for prescribing, so that as many patients as possible can be offered access to these treatments.
	To his great credit the noble Earl has been extremely consistent in raising these issues with the Government. I have in front of me the text of a Question he asked exactly a year ago. The Government's response was that they did not hold precise details about how PCTs implement the scheme, and so on.
	I hope that what the Minister has heard both from myself and the noble Earl will persuade her that the scheme is not going as well as it should. The noble Earl mentioned some significant progress that has been made, but of course that was all part of the essence of the scheme. Further progress needs to be made. I very much hope that the Minister can give us assurances that this very unsatisfactory situation will be improved.
	I do not think that anyone denies that the Government were very imaginative in the way they set up the scheme, but they now really have a duty to make sure that it is properly implemented.

Baroness Andrews: My Lords, I am very grateful to the noble Earl for giving us the opportunity to put on record some information on progress and for me to respond to some of the questions raised. The noble Earl has indeed been very persistent on this issue and it is right that we should be able to respond at regular intervals because this is an imaginative scheme, a ground-breaking scheme and very much, as he said, a major opportunity for MS sufferers. We very much see it as our duty to make sure that they receive all the benefits that the scheme is intended to provide for them.
	Multiple Sclerosis is a particularly cruel disease. It can target young people and young mothers. It is unpredictable. It has the worst possible combination of features. For many years we have been thrashing around trying to find the right therapies. The opportunity provided by the gift of the drugs that are now licensed for the lapsing/remitting form of the disease is incredibly important. I am again very grateful to the noble Earl for rehearsing the history of the risk-sharing scheme.
	I hope that I can address some specific concerns and talk about some other ways in which we believe that progress is being made. Admittedly there is a great deal of progress still to be made, but I believe that over the past few years we have made significant progress.
	Four drugs are licensed—the three beta-interferon products (Avonex, Rebif and Betaferon) and glatiramer acetate (Copaxone). Clinical trials have shown that all these products reduce the frequency of relapses and may reduce their severity. Disability progression also appears to be delayed by treatment, but the longer term effects are not certain.
	Betaferon was the first product to receive a licence, back in 1995. At the time there were differing views about the evidence from clinical trials. The then cost of around £10,000 per year per patient was high. The dismay to which the noble Earl referred was in part the result of the NICE judgment on cost-effectiveness, but it was against that background of very high cost. Resource implications were left for local assessment. Inevitably the result is variable decision making and what we now refer to as "postcode prescribing".
	I understand that the petition brought by Louise McVay, reflected in the European Parliament's report of December 2003, had its origins in that sort of problem. As the noble Earl said, the risk-sharing scheme and associated developments are intended to address many of those concerns. He asked me whether I would agree with the statement that best practice for MS sufferers should be a principal objective of every scheme in every country. Of course I would agree with that. Indeed, I do not want to limit my remarks simply to the scheme, I want to describe some of the context and how best practice is being made more accessible and more universal.
	Obviously, the key conclusion arrived at by NICE was that on the balance of clinical evidence and cost-effectiveness the treatments could not be recommended for universal treatment of MS in the NHS. However, it went on to recommend that the health department, together with the manufacturers, should consider how to obtain the medicines for the NHS in a cost-effective manner. That scheme was set out in the key circular 2002/004 which was issued widely across the NHS.
	All four products are included in the scheme. All have evidence of short-term clinical effectiveness based on randomised controlled trials, but there remain major uncertainties whether these benefits are maintained over the longer term course of the disease. The scheme addresses this uncertainty by setting target outcomes for each product based on the assumptions that short-term benefits are: first, maintained for as long as treatment continues; and, secondly, retained after treatment ceases. Models have been developed which estimate how the drugs might work in the longer term. We need that evidence because, as the noble Earl said, if the drugs delay progression of disability, not only would there be a cost saving, but that is precisely what we want to achieve for MS sufferers. The longer we can keep people mobile and out of wheelchairs, the better. That is what we aim to do. So we have agreed costs to the NHS that could be considered cost-effective if the assumptions are fulfilled. Some prices were reduced to gain entry to the scheme. If outcomes fall short of targets, the scheme provides for further cost reductions "by results". I put that on the record because that is the detail of the scheme.
	In terms of the methodology, a cohort of patients will be observed for up to 10 years. It is long-term monitoring, not a controlled trial. We expect that approximately 5,000 patients will form the core of the monitoring group. Their disability will have been assessed at the time treatment starts and be subject to annual assessment thereafter. At pre-determined intervals the outcomes will be analysed and compared to that projected by the model and to data recording the natural progression of the disease in the absence of any drug intervention. The first analysis will be undertaken when at least two years data are available for all patients in the monitoring cohort. On current progress we estimate that results from the first analysis will become available in late 2006. Subsequent analyses will be undertaken at two-yearly intervals. One reason we cannot produce regular annual reports is that we do not have any findings yet.
	The scheme has been launched with the full support of the key stakeholders, including the Association of British Neurologists and the MS Society. Both noble Lords talked about delays in the setting-up of the scheme. We have made a significant achievement, but it was held back because there were many practical problems to be overcome—we would not dispute that. Patient recruitment occurred at a slower pace than originally anticipated. The PCTs were just being set up, as were the specialist commissioning arrangements. We had to overcome some of the variability in the postcode lottery, and it has taken some parts of the NHS longer than others to resolve some of the complex staffing and funding issues. I shall talk about that in a while.
	Since then, we have had 7 per cent increases per year in funding for the health service. The PCTs are settling down and learning how to do the best job, and now the scheme is seen as part of the NHS architecture. It is an extensive operation and is co-ordinated in a very sophisticated fashion. As the noble Earl said, 67 centres are participating in the study. It is significant that originally we thought that there would be only 30. The fact that there are 67 reflects that local authorities have wanted to have a centre. The centre that is not prescribing—Truro—is likely to start doing so soon.
	The centres generally provide dedicated services for MS patients, including assessment and follow-up. More than 8,000 patients are now prescribed treatment. Of those, nearly 4,000 have consented to be monitored as part of the study. The figures can be confusing. Some patients are eligible for treatment—they are able to walk independently and have suffered two relapses over two years; those are the ABN criteria—but are not suitable for the monitoring cohort because their initial diagnosis occurred before the scheme was set up. We lack sufficient details about the extent of disability at the time of diagnosis. An example is young women taking treatment breaks to start families.
	Newly diagnosed patients are generally suitable. If current recruitment to the monitoring cohort continues at the present rate of 200 a month, we will certainly achieve the 5,000 target over the autumn. I cannot give the noble Lord figures on patients waiting for assessment, but we genuinely do not think that the numbers are likely to be great. It is a significant measure of success that, before the scheme was started, there were constant complaints to the Department of Health, led by the MS Society itself, about failure to treat. I am assured that those complaints have virtually dried up and that the MS Society is closely involved in the scheme. It obviously seems happy with how things are going.
	We will publish regular reports on progress as appropriate, but one problem that is that delays have occurred in reaching agreement with the participating companies on a method to validate the information on patient numbers. We believe that there is an element of under-reporting. It would be very helpful if companies would agree to an exchange of data, which would allow us to know how much of their product they are selling so that we have a better idea of how many people are being treated.
	Noble Lords have raised important issues about what has been described as the PCTs seeing the scheme coming to an end when the monitoring cohort is complete. Let me give total assurance on that. Eligible patients not included in the monitoring cohort will, as now, continue to be initiated into treatment under the scheme. Decisions about eligibility and initiation of treatment will continue to be made by specialist clinicians. There will be no artificial capping of the number of patients eligible for treatment, whether they are in the monitoring scheme or outside it. When the monitoring cohort is complete, PCTs will carry on prescribing just as they do now.
	I take the argument made by the noble Lords that some PCTs may have missed that point; I do not know that. The matter will be closely watched. Strategic health authorities were mentioned; they have now all appointed lead officers to monitor performance, and we shall monitor the SHAs. We will certainly watch out on the subject of information or for any confusion, as it is clearly very important.
	I want to comment on the international differences. Noble Lords are probably right that a great deal more of the therapy is available in other countries. It is difficult to make international comparisons about treatment regimes, because clinical practice alters. We may offer a different mix of therapies from other countries, so I caution against an easy comparison.
	It is also worth recording that there have been major developments in dedicated MS services as a direct result of the scheme. I particularly want to pick out the investment that we have made in specialist nurses. The Department of Health is contributing £2.8 million over three years, starting in 2003–04. That is part of a partnership between government, manufacturers and the voluntary service. We estimate that there are now between 150 and 200 specialist nurses in the specialist centres, which is about three per centre. Obviously, that will contribute enormously to the overall quality of care.
	Moreover, the Long Term Conditions Care Group is working to increase the number of neurologists. Consultant neurologists have increased by 49 per cent since 1997. There are still gaps, but I assure noble Lords that the Speciality Workforce Advisory Group has been reviewing the number of consultants on an annual basis, along with the professional groups. It has come to the conclusion that there are sufficient higher specialist trainees for there to be enough qualifying for consultant posts to meet estimated future demands.
	I do not want to underestimate the problems that shortages create, but we are moving to a better position. Central funding has also been distributed to support the implementation of 10 additional specialist registrar posts. Because physiotherapists are so important in the mix of therapy that we offer, we are also pleased to say that we now have 26 per cent more physiotherapists than in 1997. Physiotherapy training places have gone up by more than 1,000 in the same period. We have addressed the problem. The NSF on long-term conditions, which will be produced next year, will give us another opportunity to address the strategy and review the care offered. So will the modernisation agency, which is also looking, with DoH funding, at how to create better pathways and processes.
	I shall end where we began—with NICE. In November 2003, NICE issued guidelines for the NHS on the management of MS in primary and secondary care. They focus on the quality and configuration of services. Essentially, they look at better ways to deliver care. The noble Earl raised the issue of early intervention and waiting lists. Key priorities are that referral to a neurologist should take no longer than six weeks, with a further six weeks for investigations to be completed. We are not at that point yet. We have articulated it; I have said that we are doing what we can to generate greater numbers. But it will be given momentum by the publication of the national service framework next year. Continued progress is very much dependent on co-operation and effective working partnerships and I believe that the risk sharing scheme very much represents that.
	In summary, we are encouraged by progress. We take the points that the noble Lords have made. We will keep a close eye on the issues. Treatment is now widely available in accordance with ABN guidelines, where it was not before. The scheme has been the catalyst for major improvements in services. We are seeing successful recruitment into the key specialities and, as I have said, people seem to be much happier that they can rely on receiving the service that they need and which a few years ago they certainly were not receiving. I hope that, with the reservations that have been expressed, noble Lords will feel comforted by my response.

Armed Forces (Pensions and Compensation) Bill

Lord Bach: My Lords, I beg to move that this Bill be now read a second time. I declare an interest as an associate member of the Royal British Legion for the Lutterworth and District branch.
	This small, but important Bill provides the essential legislative underpinning to allow the introduction of new pensions and compensation schemes for the Armed Forces. We need to modernise current arrangements to meet the evolving recruitment and retention needs of the Armed Forces and to respond to the concerns of existing personnel and of ex-service organisations.
	As your Lordships will know, the new schemes have been developed after extensive consultation with serving personnel and with ex-service organisations. We have listened and responded positively to criticisms from the House of Commons Defence Select Committee. Framework documents setting out the detail of both schemes have been published and placed in the Libraries of both Houses, along with documents explaining the new early departure payments scheme. We have, in short, provided a substantial amount of supporting and background material.
	I recognise at once that it has taken a long time to develop these new arrangements. However, I consider the time has been well used. It has allowed us to explore and address the concerns of ex-service groups. It has ensured that the outcome properly responds to the views of service personnel and the needs of the Armed Forces. It has been necessary to address recent developments in the Government's wider agenda for pensions, which meant that the MoD's original pension proposals had to be substantially re-thought.
	The new pension scheme comes in for new entrants from April 2005. It embraces the Government's wider pensions agenda in three respects.
	First, it responds to the Government's move not to allow the payment of pension benefits before the age of 55 by replacing the immediate pension, paid currently at around the age of 40, with a system of compensation payments—the early departure payments scheme.
	Secondly, we will defer the payment of preserved pensions from age 60 to 65 in both the new and current schemes, while protecting benefits already earned for those who choose to remain on the current scheme. This responds to the increased cost of people living longer, which all pension schemes are having to address. Scheme members elsewhere in the public and private sectors are contributing to meeting that cost and it is right that members of the Armed Forces should also do so.
	Thirdly, by providing benefits for unmarried partners who can demonstrate that they are in a substantial relationship, the pension scheme recognises the wider changes in society and the lifestyle preferences of those who serve already and those we seek to recruit. This will include same-sex partners.
	There was some criticism in the other place of the fact that the Bill gives the Secretary of State enabling powers to introduce the new schemes, but that there are no details of the two schemes included in it. I hope that I can reassure the House that this is the normal approach in these matters, consistent with that used for other public sector schemes, such as the police, fire and NHS schemes. In that respect, we see no reason to treat the Armed Forces any differently. Current arrangements have no formal parliamentary scrutiny. By contrast, under the new arrangements described in the Bill, the full scheme rules will be laid before both Houses in statutory instruments and be subject to the negative resolution procedure, giving Parliament the freedom to choose whether it wishes to debate the issues. Future changes will be dealt with in the same way.
	We have responded positively to the real concerns that have been expressed by the Commons Defence Select Committee and by members of the Standing Committee that Armed Forces personnel have no representative body to speak for their pension interests.
	My honourable friend the Parliamentary Under-Secretary of State, Minister for Veterans, Mr Caplin, announced on 30 April that the Armed Forces Pay Review Body has agreed to provide external validation of the pensions scheme. The AFPRB will compare benefits offered by the Armed Forces Pension Scheme with those offered elsewhere and will consider the extent to which these arrangements meet the recruitment and retention needs of the Armed Forces. We believe that this work fits well within the AFPRB's existing remit to consider aspects of the remuneration package, of which pensions are clearly a significant element. The very high regard in which the AFPRB is held by all its stakeholders should give confidence to service personnel that their pension scheme provisions will continue to measure up to wider good practice.
	I turn now, briefly, to the new schemes themselves, which are contained in Clause 1 of the Bill. The new pension scheme remains a defined benefit pension scheme, giving a high level of assurance to our personnel in their retirement or in the event of injury, ill health or death. It will be fairer than the current scheme, with benefits based on final pensionable pay and with common terms for officers and other ranks. Those are two important differences from the present position.
	We believe that there are significant improvements to dependants' benefits: first, the death-in-service lump sum benefit is increased from up to one-and-a-half times pensionable pay to four times pensionable pay; secondly, full-career widows' and widowers' pensions are increased by 25 per cent, reflecting the particular demands of service life and their impact on a spouse's ability to earn a pension; thirdly, and I suggest significantly, widows will in future be able to keep their pensions for life on remarriage, whether or not the death is due to service; and, lastly, there is an extension of dependants' benefits to unmarried partners, including same-sex partners, where there is a substantial relationship.
	Those changes reflect key concerns raised during consultation and address the need to make proper provision for those who are left behind when personnel die or are killed in service. I have already mentioned the new Early Departure Payments scheme, which replaces the immediate pension in the current scheme. The EDP is a unique and generous mid-career leaver's compensation scheme and will be paid to personnel aged 40 and above when they leave after at least 18 years' service with their excellent transferable skills. A minority of Armed Forces personnel leave at this stage, and, historically, the Immediate Pension has been an extremely expensive benefit for the relatively small numbers who receive it.
	I can assure the House that the Armed Forces Chiefs of Staff are content that, although reduced in value, these payments will continue to support effectively their manning needs. Indeed, there is a concern that the present arrangements lead too many people to leave at the mid-career point in a number of key skill areas.
	Overall, the cost of the new pension scheme will be broadly the same as that of the current scheme, with the costs of better dependants' benefits and pensioners living longer broadly offset by a reduction in the value of payments for those leaving in mid-career and the delay of five years in the preserved pension age.
	The pension scheme will be introduced for new entrants to the Armed Forces on 6 April 2005. Current members of the Armed Forces will be given the opportunity to transfer to the new scheme as soon as possible thereafter but by no later than 6 April 2007. That does not mean that they will be given up to two years to decide; in most cases, they should need no more than three months. If personnel were to be given much longer, it is possible that many would put the decision to one side and lose sight of the timescale.
	Our current thinking—of course, we should be interested to hear what noble Lords have to say on this matter—is that the timetable will set a window for decisions of around nine months so that those who are on standard six-month operational deployments have at least three months on their return in which to take the decision, including time, of course, to discuss the issues with their family and, if necessary, with a financial adviser.
	The decision to transfer will of course be entirely voluntary for each individual member. The Ministry of Defence will give individuals all the information necessary to allow them to make an informed choice. They will also be given sufficient time to allow them to discuss their decision with their families and, if they choose, with a financial adviser.
	I turn briefly to the subject of the new compensation scheme, which will also be introduced from 6 April 2005, for death, ill health or injury resulting from service from that date. The arrangements will replace provisions under the war pensions scheme and benefits under the current pension scheme. I should make clear that the existing arrangements will continue for disablements or deaths due to service where the cause pre-dates 6 April 2005.
	The existing war pension arrangements have their origins in the two world wars and are now, frankly, outdated and complex. The current standard of proof used in the war pensions scheme, "beyond reasonable doubt", was introduced in 1943. In fact, for World War I and for the first four years of the Second World War the scheme used tests based on "balance of probabilities", the standard of proof we propose to use in the new scheme. The standard was changed to the current "beyond reasonable doubt" because of the extreme circumstances of the time when it was considered important to be able to deal quickly with the very large numbers of casualties.
	The social and medical environments are very different today. The proposed balance of probabilities standard of proof is widely accepted for other occupational schemes and, as noble Lords know, is used in our civil courts. In my view, it is no longer possible to justify the current approach. In combination with the absence of any time limit for claiming, it does not allow evidence-based decision making, properly reflecting the circumstances of an illness, injury or death. The way in which disablement is assessed means that provision is not properly focused; specifically, there is inadequate provision for those who are more seriously disabled. We would be doing service personnel a disservice by perpetuating the current outdated arrangements.
	The new scheme reflects modern medical understanding and current practice and thinking on disability. We believe that it is fair, transparent, simple to understand and offers consistent outcomes, with a better focus on the more severely disabled. Importantly, the scheme is evidence-based, with a proper requirement on the department to make available medical and other records that it holds which are relevant to a claim. The MoD accepts that it has an important responsibility in this area and that the burden of providing the evidence for a claim does not fall wholly on the individual. We are confident that no claim would fail where there was reasonable evidence that disablement was due to service. And, for those claimants who feel that they have not been dealt with fairly by the department, all this will be underwritten by an independent appeal process.
	Unlike the current arrangements, there will be in-service lump sum awards for pain and suffering where a significant injury does not lead to invaliding from the Armed Forces. Benefits will be provided for dependants where deaths result from service and—as with the new pension scheme—these will be extended to include unmarried partners where there is a substantial relationship. There will be a normal time limit to claim of five years, with discretion to consider claims delayed by ill-health, and an exception for late-onset conditions.
	The modernisation of the appeal process for compensation arrangements is the second major element of the Bill. In line with the recommendations of the Leggatt review, the Department for Constitutional Affairs proposes to change the path of appeals from decisions of the Pensions Appeal Tribunal to include a new level of appeal on points of law to a social security commissioner, with a further right of appeal to the Court of Appeal.
	Social security commissioners provide a simple and accessible system of justice. It is non-confrontational, low-cost and user-friendly. Individuals could represent themselves, if they chose to do so, but commissioners deal with most cases without the need for an oral hearing. I should also make it clear to the House that commissioners will be known as pensions appeal commissioners when hearing cases from service personnel which are appealed from the Pensions Appeal Tribunal. That will recognise the special status of Armed Forces personnel and distinguish their appeals from general matters of social security.
	There is one final aspect of the Bill which I will mention briefly. The Royal Patriotic Fund Corporation, a small charity which helps service personnel and their dependants, needs to modernise its constitution and therefore simplify and reduce its administrative burden. We have agreed that the Bill can make provision for the legislative changes required. The Explanatory Notes give more background to that.
	In conclusion, the new schemes are designed to be fairer, to reflect modern good practice and to meet the needs of our Armed Forces in this century. Those schemes were born out of a wide-ranging consultation exercise that included existing personnel, ex-service organisations and last, but certainly not least, the House of Commons Defence Select Committee.
	Their comments and concerns are reflected in substantial changes to the final schemes. The proposals have the confidence of the service chiefs and their staffs, with whom they have been closely developed, and the reactions of individual service personnel have so far generally been positive.
	At a time when pension schemes are under great pressure more widely in the economy, we have retained a defined benefits structure and we have made major improvements to widows' and dependants' benefits. I make no apology for going against the trend seen more widely in pension provision; that is, towards placing the ultimate risk on the individual through defined contribution schemes. Service personnel can be assured that they are getting a very good package and, specifically and most importantly, that if the worst happens there will be generous financial support for their families. The level of provision is high, but we believe that such treatment in those circumstances is fully justified. I commend the Bill to the House.
	Moved, That the Bill be now read a second time.—(Lord Bach.)

Lord Craig of Radley: My Lords, I am grateful for this early slot in the speakers' list. I am involved with the Constitutional Reform Select Committee that is currently in session. I have already expressed my apologies to the Minister and the Front Benches for my consequent absence for part of the debate.
	I am very pleased that the MoD has produced this much needed and long awaited Bill. It has taken years to get here. It will be another year before the new scheme arrangements, many of which I welcome, are in place. I should remind the House that I am a vice-president of the Forces Pension Society. It is appropriate to commend the society's determination and hard work in its many meetings and exchanges with the MoD. They have played an important part in identifying and securing some significant, if overdue, pension and compensation improvements for servicemen and women and their dependants.
	When I was commissioned aged 21 in the RAF, even with an honours degree in pure mathematics, neither pensions nor compensation arrangements figured anywhere in my personal thinking about my future career. Even today, with much more exposure to the topic, and as a pensioner, I am still far from clear on much of the detail. The whole topic is riddled with complexities. I shall not labour that point other than to stress this important consideration: it behoves the employer—MoD—to make exceptional efforts to ensure that servicemen and women are not short changed. There should be an understanding—an undertaking—that Armed Forces pension benefits will always be at the level of the best in public service and never measure unfavourably with best practice in the private sector.
	Service in the Armed Forces has unlimited liability—anywhere, any time, at no notice. When he was in another place, the noble Lord, Lord Rooker, said:
	"Members of the Armed Forces enter into a unique contract with the state. In effect, they agree to die for their country if necessary".—[Official Report, Commons, 24/7/00; col. 816.]
	I am sure that this House would agree with him.
	It is not reasonable to expect young men and women who join the Armed Forces to be pensions "literate". Youth and the spirit of adventure mean that pension and compensation are not something that the recruit weighs in the balance when deciding whether to sign on. It was not the case with my age group when we joined up.
	I do not know whether the Minister has any evidence that pension and compensation rates are a significant pull factor and recruiting sergeant for today's youth. The minuscule number of serving personnel who responded to the consultation exercises—a mere 139 on pensions and 22 on compensation—seems to indicate that attitudes have not changed from my generation.
	Another of my concerns was that there was no provision for any review, so I was much encouraged to learn from the Minister in his letter of 30 April that the Government would invite the Armed Forces Pay Review Body to carry out quinquennial reviews and assessments. That is good news, but does it go far enough? The AFPRB does not report on remuneration for senior officers of two stars and above. How will their pension entitlements be reviewed?
	Will the Minister confirm, as now happens with AFPRB recommendations on pay, that its views on pensions and compensation will be accepted and implemented by the Government? Will the AFPRB be restricted to a review of the new schemes only? That would be unfortunate. I strongly urge that the involvement of the AFPRB is placed on the face of the Bill. This would give great reassurance that the schemes will not be allowed to become outdated and outmoded, as has happened in the past. I press the Government to adopt this suggestion.
	It has been MoD practice to argue that the impact of pension arrangements on recruitment and retention has to be considered. In his letter about AFPRB involvement, the Minister referred to that again. I do not like this because it is a cop-out. I am not aware that generous pension schemes for Members of Parliament are dependent on recruitment and retention. I doubt whether private schemes based on best practice are greatly varied to take account of recruiting. Why should this provision, which could be prayed in aid of lower than best practice arrangements when recruitment and retention happened to be good, be allowed? Recruitment and retention rates fluctuate, and to rely on them as a means of settling or reviewing pensions which will run for decades seems wrong. I hope that the AFPRB will not allow it to dominate its advice about pensions.
	At the moment, this enabling Bill will allow a Secretary of State to set up new schemes, varying them up or down solely by statutory instrument. The armed services would be reassured if there were some key benchmarks about the new schemes on the face of the Bill. In spite of his opening remarks, I hope that the Minister will consider including some of those, such as the improved rate for dependants' benefits; the new death-in-service benefit; and that defined benefits are to be based on actual pensionable earnings. These and some other key markers drawn from the proposed new schemes and put on the face of the Bill would set a baseline below which pensions and compensation benefits could not fall without primary legislation.
	I note with concern a matter the Minister referred to, and one that I know the noble Lord, Lord Morris of Manchester, will speak about as well: that the MoD is proposing to change significantly the standard of proof needed for a claim. The onus will move from the MoD to the individual serviceman. This does not strike me as the action of a caring employer who should be no less willing to treat quickly and sympathetically today those who suffer great trauma, both mental and physical. I do hope that the MoD will think again and agree to retain the present standard of proof in the new scheme.
	Finally, I turn to two of the legacy issues. As we have heard, the new scheme, while improving arrangements for future widows and partners, perpetuates a source of great anguish and disgust. I refer to the differing treatment of those who become service widows. The new scheme will withdraw the existing distinction about whether or not the spouse's death was attributable to service. All widows and widowers, and all unmarried partners of either sexual orientation will now be permitted to keep their pensions for life. So far, so good. But the Bill will leave the existing non-attributable widows' rules untouched. These widows will still lose their pensions, should they elect to remarry or even to cohabit.
	Why discriminate against a small, discrete group by relying on a long-outmoded rule dating from the days when women were perceived to be totally reliant on their husbands for support? The rule has been dropped for all other widows and widowers, unmarried partners of either sex and their offspring. It is utterly indefensible.
	Could not those affected be allowed to opt for the new scheme? Governments have been, recently, much less rigid about holding to past precedent when close family relationships are involved. Once only those married could benefit. Now entitlement has stretched far beyond the confines of a legal marriage. Surely those legally married should not lose out.
	A further widows' issue concerns post-retirement marriages. My postbag—as I am sure have those of other noble Lords—has been full of letters from those who will remain assessed by a rule that has now been scrapped for other widows and widowers in the new scheme. I could quote any number of telling points that have been made to me but the underlying message is clear and strong.
	A serviceman's pay throughout his career was abated to provide a pension entitlement for himself and for a widow and dependent children of his. That is what he thought he was paying for; the more so when he, along with many others, was given the opportunity and encouraged to pay to increase his widow's pension entitlement from a third to a half of his own pension. Surely, in equity, he has a right to expect that if he leaves a widow she should benefit from his contributions and that the Government should honour that arrangement regardless of when he did get married. Any dependent child should also not be penalised.
	We should remember that service rules and customs discouraged early marriage for the generation of individuals who are now affected. The pattern of service life then—many young servicemen were stationed overseas and their chances of meeting a potential spouse were limited or non-existent—meant that marriages were often contracted later than in other walks of life; in many cases only after the end of a military career.
	I hope that we do not have to await the debates on the relevant statutory instruments to correct these gross injustices which bring so much justifiable anger and distress to those affected. It would be greatly appreciated if the Government would themselves table the necessary undertaking so that there is not an unseemly battle over the issue. It is too sensitive and too distressful a matter to be a topic for heated debate in your Lordships' House. I urge the Government to do so and I invite other noble Lords to support me in this appeal.

Lord Morris of Manchester: My Lords, I am grateful to my noble friend am delighted to follow the noble and gallant Lord, Lord Craig, whose wise counsel—as I know my noble friend agrees—is always most helpful in debates on the needs of service and ex-service men and women alike.
	The Bill is a measure of profound significance for our Armed Forces, as it is, too, for the ex-service organisations and those who work to make life better for war widows. It promises welcome improvements in pensions for service men and women and improved death-in-service benefits for widows/widowers of the future. Cover will be provided for in-service accidents which strangely—one could also say scandalously—is currently available to service personnel only if they take out private insurance. That, too, is most welcome. But there are intended changes—more especially one fundamentally to change the war pensions scheme— that cause the ex-service community deep concern. Again, there is regret that this opportunity to do more to help older war widows is not being taken.
	I have two interests to declare: first, as honorary parliamentary adviser over many years to The Royal British Legion—the authentic voice of the ex-service community—and, secondly, as vice-president of the War Widows' Association. I speak also as the son of a war widow and from personal experience of active service with Middle East Land Forces when Israel was still Palestine and our role was to stand between rival terrorist groups that would have had very little to learn from Al'Qaeda.
	My friend, the noble Baroness, Lady Strange, president of the War Widow' Association, has been fighting the good fight for war widows for as long as I can remember. I much look forward to her speech in this debate and I honour her today, as I do the noble Lord, Lord Freyberg, and, of course, my noble friend Lady Dean, for the constancy of their commitment to war widows and the ex-service community.
	While acknowledging all the difficulties, as a former Minister, I find it sad that the 60th anniversary of D-day could not have been marked by the announcement of some further new help for older war widows. Most of them lost their husbands during or due to the Second World War. Their average age is now over 80 and the attrition of age-related illnesses and disabling conditions reduces their number year by year. In consequence, the cost to the Exchequer of war widows' pensions falls year by year. So more could now be done to help them without increasing the totality of public spending. Was that not justification enough for making last weekend's commemoration in Normandy—and I warmly congratulate the Government on their part in its success—a moment not only for reflection and admiration for those who were prepared to lay down their lives for human freedom but of practical concern for the increasingly needful loved ones of those who did so? We all owe them an immense debt of honour.
	Of course, from next April, all service personnel and those widowed after then will be affected by this Bill's hugely important intention to change the rule relating to burden of proof for awards under the war pensions scheme, the principal avenue for compensation for death, illness or injury caused or made worse by service in the Armed Forces. As of now, the scheme's distinguishing feature is that burden of proof rests not on the claimant to show that death, illness or injury was due to service but on the MoD to disprove the claim. Seven years after the death—or the condition being identified—the onus of proof moves to the claimant, but an award may still be made provided "reasonable doubt" would justify the claim. There is no time limit for claiming.
	That the placing of burden of proof on the MoD is the distinguishing feature of the war pensions scheme was set in bold relief by my noble friend Lord Bach—whose personal commitment to helping war pensioners wherever and whenever he can is undoubted—when he replied to my Starred Question on 22 January about the case of the late Major Ian Hill. As a lawyer, my noble friend is all too familiar with the much sterner "balance of probabilities" standard of proof used in courts, and he took pains to emphasise the crucially important difference by pointing out that Major Hill's widow did not have to prove that his death was due to service but—and I stress his words—only to a reasonable doubt.
	"I can say",
	he replied,
	"that war widows' pensions are paid when death is deemed to be due to service, and that the widow has to raise only a reasonable doubt for claims to succeed".—[Official Report, 22/1/04; col. 1138.]
	Yet the MoD now intends to abandon that safeguard: to dump "reasonable doubt" as the standard of proof and substitute "balance of probabilities", thus transferring the onus of proof to the claimant.
	Making the effect of this pikestaff plain, the House of Commons Defence Committee has noted that,
	"under the existing scheme, it is for the Secretary of State to show beyond reasonable doubt that Service has not played a part in causing or worsening the condition for which a claim is made. Under the new proposals, the standard of proof is changed to a "balance of probabilities" with the onus of proof on the claimant to make the case".
	The Royal British Legion estimates that this change will mean a cut of 60 per cent in claims for service after 2005 that would succeed under present rules. The estimate is based on the Legion's involvement in a vast range of case work. Last year alone, over 1,300 initial cases came its way, and the Legion took scrupulous care in making its estimate.
	The Government's reaction has been to cast doubt on the estimate while doing nothing whatever to produce one of their own. Attempting to allay criticism of this negative stance, they told the House of Commons:
	"We have now joined with the [Royal] British Legion to consider the methodology it used".
	That is not true. They have not joined in discussion with the Legion. And even if they had, it was up to them to produce a valid statistical analysis of their own, based on data available to Ministers, not simply to criticise the Legion's methodology without particularising their criticism.
	The Government did attempt a statistical comparison by looking at the Industrial Injuries and Disablement Scheme and the Criminal Injuries Compensation Scheme, but it was a flop because the two schemes and the standards of proof are predicated on entirely different bases. In fact, the Government's own consultants dismissed it as invalid.
	Again, the MoD claims that the "balance of probabilities" standard of proof is more modern and fairer; but how much fairer would it have been to the late Ian Hill's widow? As my noble friend knows well, there have always been two standards of proof, one applicable to civil law and the other to criminal law. This is not a modern invention.
	The Armed Forces accept unlimited liability in defending the interests of this country. Their one safeguard with regard to compensation if they become incapacitated due to their service has been the War Pensions Scheme with its standard of proof strongly based on "reasonable doubt". Removing that safeguard will leave service men and women in an extremely vulnerable and totally unacceptable position.
	It must be a cause for very serious concern that the Government now want so fundamentally to change the War Pensions Scheme without, as we have seen, providing any data as to its likely effect, despite being challenged to do so by the House of Commons Defence Committee and the Royal British Legion. It is a change of policy that alters the recognition, over more than 60 years, that there are "specific circumstances" and special factors which apply to our Armed Forces. The Government now seek to place them on the same footing as teachers and other public sector workers, those hurt in street brawls or workers injured in industry, whose employers have compulsory employers' liability insurance. That is demonstrably wrong.
	I heard recently of an employee of a British contractor in Iraq earning £5,000 a week who was attacked while working and said that he should have been protected by British troops. It would be interesting to learn how his pension arrangements compare with what is now proposed for our troops deployed there, and the widows and other dependants of those who have been killed in Iraq.
	The essential difference between the Armed Forces and almost all other employment, as the House of Commons Defence Committee said in considering this issue,
	"is that Armed Forces personnel can be asked to put themselves in harm's way, indeed to die for their country, which makes compensation for injury an entirely different matter for them than for civilians . . .
	"There can be no proper basis for comparing the Armed Forces Scheme . . . with schemes for other public sector workers [civil servants, teachers, nurses and the like] who are simply not exposed to anything remotely similar to the dangers and uncertainties of service factors".
	That is the ex-service community's case for insisting that the existing "reasonable doubt" standard of proof is retained.
	I most strongly urge Ministers now very urgently and meaningfully to consult with the Royal British Legion to end the present impasse. Meanwhile, let us all recognise that for parliamentarians there is no more compelling duty than that of acting justly to those who are prepared to lay down their lives in the service of this country and the dependants of those who do so.

Baroness Park of Monmouth: My Lords, the noble Lord, Lord Morris of Manchester, has put the case in compelling terms for rejecting the new proposed standard of proof in this Bill—the balance of probability which puts the onus on the claimant to prove his case—and for retaining the present system. I cannot do better than to quote from the House of Commons Defence Committee report on December 2003 on Armed Forces pensions and compensation. In paragraph 69, the report said:
	"Because of the special risks that Armed Forces personnel are required to run and because they are likely to be involved in situations of great uncertainty with uncertain effects on their health, we continue to believe that the onus should remain on the government to prove that service will not be responsible for causing or worsening a condition for which a compensation claim is made".
	The Government claim that the proposal is to bring the scheme into line with civil law and common practice, and "reflect modern practice". The truth, I suggest, is that this is another cost-cutting exercise. Why should those who voluntarily risk their lives to serve their country be treated in the same way as a civilian, however brave and worthy, simply because it would be tidier? The MoD has a duty to prove that their service was not responsible for causing or making worse a condition for which a compensation claim is made.
	The Gulf War veterans have had a long and painful experience in fighting this battle, although the MoD did eventually set up a Gulf Veterans Illness Unit. I heard the Minister say on the radio this week that the unit has spent £8 million so far on research to establish whether or not there exists a Gulf War syndrome. The research continues and they are not prepared to make any decisions of principle until the outcome is known. Meanwhile some of the veterans have died and others continue to lead stressful lives. They have been fighting just the kind of battle that the MoD now wishes to make the general rule, paying for legal help and finding it difficult, but not impossible, to make their case because of a serious failure in the MoD at times to preserve vital medical records.
	I am not at all cheered to hear that there is a brand new computerisation program planned to provide access to medical records. What went wrong last time was a computer scheme that failed and lost a significant number of medical events. In the case of the Gulf War veterans, they were sometimes refused access to their medical records in any case because the records were said to be classified "Secret". I hope that that will not happen again.
	However, I return to the simple but cardinal issues. The "modern" balance of probabilities formula requires a claimant to demonstrate that on balance the disablement is due to service. It is not reassuring that the Government wish to move to this procedure not only because it reflects so-called modern practice elsewhere in society, but also because:
	"The WPS eligibility criteria can no longer be justified either in relation to wider best practice or in relation to the particular demands placed upon Service personnel and how these would be dealt with elsewhere in society".
	I submit that servicemen are unique in that society because of their commitment of their very lives, if that is necessary, to defend the realm. Yet this Government, who I would have thought had very recent and direct experience in the Balkans, Afghanistan and Iraq of the risk to life and limb that is accepted and embraced by our Armed Forces, wish to tidy things up and have the same standards for them as for, let us say, the insuring of a house or a car or for taking out holiday insurance to go skiing. They are prepared to put a man or woman, already ill or under stress, to further stress to fight their case. The onus should be on the Secretary of State to prove beyond reasonable doubt that the individual's service has not contributed to causing or worsening the condition for which the claim is made. This is all the more necessary since so much turns on the medical record, and the MoD, not the claimant, holds these records and has not been seen to be a very competent record holder in recent years.
	The new plan does not strike me as likely to aid recruitment or create confidence because it is so manifestly weighted against the individual and in favour of the state, and all this is said to be in the interests of being modern and, I suppose, politically correct. I am greatly reassured to hear that the AFPRB will be playing a positive role in this issue.
	It is not fashionable to recognise that the country owes a special debt to servicemen and women, a debt of which we have recently been reminded, and I do not believe that the ordinary man in the street would wish to see the system changed, because of its inevitable consequences for the individual claimant. The British Legion does much for these people, but the average claimant will not be able to afford legal advice if the case goes to appeal. He will have no right to legal aid, as it is not available for appeals concerning war pensions.
	I feel particularly strongly about the need to place the onus of proof on the state, not on the litigant—which would, therefore, protect the litigant—because I have been involved for the past year in trying to do something for ex-servicemen and women in Zimbabwe. The many old age homes are having great difficulty in surviving because formerly the white farmers provided fuel, food, transport and much practical help. In just one of them, there are 44 service pensioners from all ranks and services. Their pensions are nearly worthless because of over 600 per cent inflation and can be reckoned in terms of from half a loaf of bread a month to eight loaves and nothing else. There is no money for medicine or medical care, food, shelter or rent, or for such basic needs as soap, batteries for the radio or new spectacles if they get broken. Unlike pensioners here, these pensioners can expect nothing from the state. Here they would get medical and dental care or social security payments. Their case is unique and it has simply not been known.
	I quote them because, thank God, pensioners here are relatively well looked after both by the MoD and by the British Legion but we must not allow the Government to trickle their rights away in the name of modern best practice. These are valuable people who are not good at asking for help for themselves. They will be frail and they will find it difficult to fight battles for themselves rather than for the country.
	I have one final point and one question. I do not know how great a part the MoD's medical advisors are required to play when claims are made but the present state of Defence Medical Services is still dire. What impact will that have on the pensions arrangements?
	In my question I ask for information, and it is my ignorance that compels me to ask. Has the MoD yet announced the compensation package for those who were improperly taxed? I ask because, in the Defence Committee's report of late December 2003, it had not been announced by late October.

Baroness Strange: My Lords, I apologise in advance to my noble friend the Minister if I am not able to stay to the end of the debate as I have to catch the last train to Scotland, but I hope I shall.
	I must declare an interest as president of the War Widows Association of Great Britain, so that what I say will be directly applicable to those ladies. My noble friend Lady Dean of Thornton-le-Fylde took some of us from the Defence Study Group last week to the MoD, where the Minister—the noble Lord, Lord Bach—and his civil servants were most helpful to us all in talking us through the new Bill and answering all our questions. We were all agreed that there was much to be welcomed in this new Bill, particularly for service men and women, and—though I sincerely hope there will be none—war widows after 2005.
	It is an enabling Bill, and there is some uncertainty over detail. Because of this we must ensure that the devil does not get in here. We want an assurance, as my noble and gallant friend Lord Craig of Radley, said, that all future revisions and draft regulations will be brought to Parliament under the affirmative resolution procedure, so that we can discuss them, and not just find them shoved away under the carpet in a corner of the Library.
	We believe that it is particularly important that the pensions and guaranteed income stream should be index linked to the retail prices index and not to any lower index. This, your Lordships must agree, is particularly important for widows with young children, who have to eat and need new clothes as they grow.
	It is possible that widows and young children will be better off under the new scheme, but there is still some lack of detail which we would like spelt out for us.
	I should like to thank my noble friend Lord Morris of Manchester, who is a vice president of the War Widows Association and does sterling work for us all, for his delightful and charming compliments. He and the noble Baroness, Lady Park—my noble friend—and the War Widows Association and the Royal British Legion all have many concerns about the change of the burden of proof from the DSS criterion, that an injury must be proved not to have been the result, to the MOD criterion which is that the burden of proof must be on the individual concerned. As the individual is obviously at the time in a damaged state that can be more difficult.
	There is the Cheryl Hume case where a lady was awarded a war widow's pension by the DSS criterion; turned down by the MoD, on its criterion; appealed to the ombudsman, who decided in her favour; and then appealed in the High Court against the MoD, and won. There are other ladies in her situation who have not appealed, and are therefore disadvantaged. I think that there is much to be said for having one criterion, so that we do not have all this difficulty, but the decisions must be transparent, above board, and seen and known by everyone, and not just decided hugger-mugger in the MoD with no one having any access to what is going on.
	In 2000, members of the War Widows Association were all delighted to achieve the right of post 1973 war widows to retain their attributable Armed Forces pension for life whatever their future marital status. That has been an enormous emancipation for them, although very few of them have in fact remarried. It does however create an anomaly for all service widows—but not war widows, as my noble and gallant friend Lord Craig of Radley said—who would lose their forces family pension if they remarried. After 2005, all service widows on the new scheme will be able to keep their pension for life, so this will once more create a trough. It is possible that not many of these ladies, like the post 1973 war widows, will wish to remarry; so to iron out this glitch might not be as expensive as the MOD fears. It does not represent new money from the Government, merely preventing money which is already being paid out and which could then be clawed back.
	All of us at this time are touched and moved by the D-Day memorial services, all those hundreds of old men, in their uniforms and medals, standing in the boiling sun so proudly on the beaches on which they had once fought their way through so horrendous a battle, when they were only 18 or 19, so long ago. I think we all cried a bit, as we saluted their courage. This is a time now to remember also the girls, so many of them left behind. Some of them now, 60 years on, might wish to remarry or cohabit for companionship's sake. One of them wrote to me,
	"We come of a generation that believes in marriage. I am 86 and my husband is 92. People of our vast age do not lightly become what is now known as partners. We decided that, although it would mean a fearful tightening of belts, we would marry. This we did last October. I have now lost my war widows pension and my MOD supplement".
	Could these ladies not just at least retain their MoD supplement if they remarry or cohabit for companionship's sake? As we remember those brave men who gave their lives on those blood-stained beaches, could we not show compassion to the girls they left behind so long ago?

Lord Hodgson of Astley Abbotts: My Lords, I must begin by declaring an interest as a trustee of two final salary pension schemes, and as chairman of one of them. I suspect that this is a peripheral interest to the matters that we are discussing this afternoon but I should like to put it on the record.
	We had a characteristically persuasive and sincere introduction from the Minister. A Bill that ostensibly at least sets out to update and improve pensions and benefits for members of our Armed Forces instinctively commands sympathy. As many noble Lords said, it may be repetitive and trite to refer yet again to the particular risks that they run on our behalf—it may be trite but it is also true.
	Further, when one reads in paragraph 6 of the Explanatory Notes that the Bill is intended to replace or update the Naval and Marine Pay and Pensions Act 1865 and the Pensions and Yeomanry Pay Act 1884, one is bound to conclude that pensions must have moved on a good deal in the intervening 140 years and therefore that an updating is probably well overdue. Similarly, moves to bring up to date the structure of the Royal Patriotic Fund Corporation, to which the Minister referred, seem entirely sensible. So one approaches the Bill with sympathy. However, the closer one looks into the detailed provisions of the Bill, the more inequitable they seem to be and, indeed, the more at odds the proposals seem to be with the Government's own wider pension policy objectives, particularly as regards member involvement, participation and education as expressed in the Government's own pensions White Paper, Simplicity, Security and Choice.
	I should like to address my concerns under five main headings: the unique role and position of our Armed Forces; the issues of enabling legislation; the concept of cost neutrality; member involvement and education; and, following the comments of the noble and gallant Lord, Lord Craig of Radley, correction of past inequalities—the "legacy" issues, although not the legacy issue that he raised.
	First, I turn to the role of the Armed Forces and the Government's view of them. I have no doubt about the Minister's sincerity. I have heard him speak with conviction and candour about the special nature of service in our Armed Forces and the level of commitment it requires. So what I am about to say is not aimed at him. However, paragraph 11 of the Explanatory Notes to the Bill states:
	"Clause 1 is modelled on the Superannuation Act 1972 which governs the Principal Civil Service Pension Scheme (PCSPS), the Local Government Pension Scheme, the Teachers' Pension Scheme and the NHS Pension Scheme".
	I do not find that encouraging. As the noble Lord, Lord Morris of Manchester, pointed out, members of the Armed Forces are not like teachers or local government officers or nurses, worthy though such careers are. It is not so much the danger inherent in a service career, though it includes that. More, it is the inevitably shortened career span imposed both by the structure of the Armed Forces—the rapidly narrowing pyramid—as well as by the physical nature of many roles, which means that they cannot be fulfilled by older men and women. So, as was frequently pointed out in debates on the Bill in another place, most servicemen and women serve for much less than a full career. In those debates the Armed Forces Minister tried to argue that this does not matter, because departing members of the Forces find it easier to get civilian jobs, and so can provide for their pension through their second career.
	My anecdotal evidence suggests that that is not the whole story. First, while it is true that members of the forces get a job fairly easily, it has proved much harder for them to get a job with commensurate responsibility and therefore commensurate remuneration. Too often, I am told, there is a need to trade down, which has an inevitable impact on pension levels. Secondly, my anecdotal evidence suggests that the longer the individual has been serving, the harder it is to get an alternative job, so that those who have given the most to the country and presumably have been the most valuable to the services, find it the hardest to start another career. They therefore suffer the greatest financial shortfall.
	In at least one respect, the Government recognise that service men and women are different from those others employed by the state. If this were not so, why would the Government exempt the Armed Forces from the national minimum wage? The minimum wage applies to local government officers, teachers and nurses, but not to servicemen. The Government further recognise the special position of servicemen by the use of the "X-factor". In answer to a Written Question I asked the noble Baroness, Lady Symons of Vernham Dean, she said:
	"Unlimited liability for duty is essential to operational effectiveness of the armed forces, and, given their unique status, the Services are exempt from the provisions of the National Minimum Wage Act 1998 . . . An additional element called the 'X-factor' (currently 13 per cent of basic pay) is then added to reflect the overall balance of advantages and disadvantages experienced by members of the armed forces which cannot be taken into account when assessing pay comparability".—[Official Report, 29/11/00; col. WA 133.]
	So much for comparability with the Superannuation Act 1972—I see no "X-factor" for teachers, nurses or local government officers.
	Further, when one studies paragraph 36 of the Explanatory Notes to the Bill, one reads:
	"The long-term pension cost increases are being addressed through the Government's proposals in its paper 'Simplicity, Security and Choice', as well as through increased Departmental contributions for future pension liability".
	I have looked through this document, which is 167 pages long, and I may have overlooked something, but I can find no mention of the Armed Forces at all. Indeed, when I asked the Minister's colleague, the noble Baroness, Lady Hollis of Heigham, about this in the earlier debate today, she said that Simplicity, Security and Choice did not apply to the Armed Forces. But what I find on page 105, paragraph 59, is the sub-heading "Tax changes to encourage flexible retirement". Paragraph 60 states:
	"Currently, tax rules allow people to work and draw an occupational pension, but only where they no longer work for the company that is paying the pension. Often people who would like to carry on working do not want, or are unable, to change employers at this stage in their career. So they end up retiring when they would have preferred instead to stay in work in a reduced capacity, supported by a combination of earnings and pension".
	In the Armed Forces, by contrast, there is enforced retirement. So how do the Government square this with the proposals in Simplicity, Security and Choice?
	The Minister may argue that there is a proposal under the Bill to replace the immediate pension with early departure payment. Those represent, according to the House of Commons Defence Select Committee report on the subject, at paragraph 50, a saving for the state—or, from the other point of view, a reduction in benefit—of £100 million per annum or 2 per cent of pensionable pay. The Minister owes the House a better philosophical and practical explanation of whether the Government accept that the Armed Forces' position is unique. At present, it looks all too much as though the Government are determined to cram the Armed Forces into pension schemes structured for other very different careers, with the Armed Forces losing out on the way through.
	My second area of concern is that this is little more than a framework Bill. We have a skeleton but little flesh and blood. This is a familiar rant, and I do not propose to develop it, except in two regards. The first involves the statement in paragraph 11 of the Explanatory Notes:
	"The Statutory Instruments made under the Bill and any amending instruments will be subject to Parliamentary scrutiny under the negative resolution procedure".
	I note that the Minister said that that proposal persisted unamended. I accept that the details of a pension scheme cannot be put into primary legislation but, in pensions more than in most areas, the devil is in the detail. The Government must think carefully whether the negative procedure is a good enough safeguard in these circumstances, given our ability—or, perhaps I should say, our inability—to amend statutory instruments.
	Secondly, while I accept that the detail of pension provision cannot be put into primary legislation, the Secretary of State is taking powers to do far more than amend details. Under Clause 1, for example, the Secretary of State may by regulation change the whole scheme from "defined benefit" to "defined contribution". That is no detail; it is seismic in its effect and impact on serving personnel. I am not sure that the Government have grasped that. They are taking for granted passive acceptance by servicemen and servicewomen.
	Next is the issue of advice, guidance and communication for members of the Armed Forces. I accept that pensions are an issue that make many people's eyes glaze over; young, fit and active servicemen and servicewomen will be no exception. That is no reason not to be open and honest and to facilitate the provision of advice. The Armed Forces pension scheme is described as non-contributory but, as I understand it, there is a 7 per cent abatement in each individual serviceman's pay as a contribution towards the cost of pension. It is not shown on the payslip. I will restrain myself from spending too much time on a semantic argument about whether that can be described properly as a non-contributory scheme.
	I doubt whether one could get away with that in the private sector. I will wager that if you asked a serviceman what he paid for his pension, he would say that it was free. It is not; it has cost him a 7 per cent abatement—carefully hidden from his view, perhaps, but a cost to him none the less. I understand that the situation is worse than that, because the MoD hides another little wrinkle from members of the Armed Forces. Normally, in the private sector, pensions are calculated on gross salary before contributions, whereas service pensions are calculated on net pay after abatement.
	I refer the Minister to page 71 of Security, Simplicity and Choice, where paragraphs 105 to 107 contain three important proposals that the Government intend to apply to the private sector. I wish to know whether they intend to apply those to members of the Armed Forces.
	The Government profess to be very concerned about consultation with members, at least as regards the private sector. Again, the Government's White Paper lists a number of proposals:
	"We are proposing . . . ensuring that members are consulted about changes to their pension scheme".
	Perhaps the Minister can say how the Government will fulfil that objective as regards the Armed Forces.
	I wish to say a word on the remedying of past inequities—the legacy issue. There are several examples, particularly relating to widows' pensions, but I wish to focus on the pensions trough. My colleague in another place Gerald Howarth has received answers to questions that starkly illustrate the depth of the trough and, still more dramatic, the cumulative impact of RPI uprating. Thus the pension receivable by a member of the Armed Forces of the same rank after the same length of service, retiring in the five-year range 1975 to 1979, could vary from £13,800 to £18,400, a difference of over £4,500 per annum or one third.
	The difference has come about because of the chance combination of Government public sector pay policy and the existence of a forced retirement date for individuals. I do not exclude my own party for having failed to grasp this when in government but it does now need to be grasped. The Government accept this in principle. Again, I refer the Minister to Simplicity, Security and Choice. Paragraph 47 on Page 27 states:
	"What income might individuals want in retirement? In planning for their retirement, most people will compare their projected living standard in retirement to that enjoyed during their working life. The ratio of retirement income to income when in work is called the replacement rate".
	So what about the replacement rate for this unfortunate and unlucky group of people?
	To conclude, of course I want to see our Armed Forces properly looked after in their retirement. So I welcome the provisions in this Bill which bring their pension provision up to date. But I cannot conceal from the Minister my concern at the line the Government are following, both in broad approach and in detail. I very much look forward to hearing the Minister's response.

Viscount Slim: My Lords, I cautiously welcome some of the schemes the Government are putting in place. I know that we have been talking about what will happen in the future, but I should like to go back a little to the past. I believe that a grave injustice continues to the widows who receive only a one-third pension.
	I take your Lordships to the 31 March 1973. Anyone serving before that was not allowed to pay in to extend his pension to half his final salary and emoluments. I think that was a very grave injustice. That really means that the Government, previous governments, and particularly down the corridor in another place, are all satisfied that the one-third payment is fair.
	Of course a lot of flak is put up by governments, politicians, Members of Parliament and civil servants, saying that the issue is a bit of a dead duck because no one has worked on it and particularly that the European Court has ruled against any change on the technical side. But I see this as a moral issue. We are saying that everyone is happy that this bunch of widows are still receiving only one third of a pension. There is no Member of Parliament whose widow will receive one-third of a pension. These days, I cannot think of many widows or pension schemes where one third comes in.
	So, I ask the Minister what we are going to do about this. It was suggested—and it is a good suggestion—in December I think by the Forces Pension Society that a little compassion should be shown in this area and that pre-31 March 1973 widows should be given the same advantage of being able to opt in and turn the pension into a half, like the post-1973 widows.
	I should have thought that in this year of the veteran—2004–05—something innovative could be done about this. It will not cost the Ministry of Defence anything because it will be getting money in. Some widows will be unable to pay, some will not wish to pay and some will pay. It is really a gesture of opportunity to enable them to feel once more that they are wanted a little more than they have been in the past and that they are thought about and cared for.
	When the Ministry of Defence took over the whole panoply of caring for and looking after veterans and widows and their pensions, there was quite a lot of trumpet-blowing about what it would watch and do. However, I still see little sign of compassion in the area. The suggestion that may have been put forward by the Forces Pension Society is a good one. What has the Minister been doing about it since it was made in December, and why cannot we hear some innovative idea? Let us do something.

Earl Attlee: My Lords, I remind the House of my interest as a serving TA officer. Sadly, I have no MoD pension entitlement. Service pensions used to be DHSS business but have been returned to the MoD, which is why it was the noble Lord, Lord Bach, who moved the Second Reading. I have no experience in pension matters, unlike my noble friend Lord Hodgson, and I do not intend to make a comprehensive response to the Bill.
	The Armed Forces are far more joint and PC than anyone in the Westminster village realises. When I refer to junior ranks, I include Royal Navy ratings and RAF airmen. My arguments apply to all three services, and to servicemen and servicewomen equally. When I use the term "TA", I include all volunteer Reserve Forces.
	The Minister told us about the time window for deciding to join the new scheme, but the period affected by operational commitments can be quite long and should certainly include the time spent preparing for operations, the time actually on the operations, and the post-operational tour leave period. It might be better to have a substantial period of education for servicemen, and that could include time on operations. The Minister is rightly concerned with having too long a decision-window, because that might result in procrastination on the part of servicemen. The matter would benefit from detailed discussion in Committee, as I think the Minister hinted.
	The Minister and others referred to parliamentary scrutiny by means of the negative procedure. We will have to wait and see what the Delegated Powers Committee decides, but it may be preferable to have the first order subject to the affirmative procedure. The noble Baroness, Lady Strange, suggested subjecting all the subsequent amending orders to affirmative procedure, which might be overdoing things a little.
	My noble friend Lord Hodgson talked about the challenges of obtaining civilian employment on leaving the services. The Minister told us about transferable skills, but I have seen highly trained warrant officers from my own corps—the Royal Electrical and Mechanical Engineers—struggle to secure a civilian job of equal salary and status. I am particularly worried about the position of junior NCOs and servicemen who are severely disabled on exercises and operations. I urge noble Lords not to forget that bad accidents occur on exercises as well as operations. That is frequently overlooked, but the Minister nods his head; I am sure that he is very well aware of it.
	If a junior NCO is severely disabled, he is awarded a substantial lump sum plus a war pension, but at a junior NCO rate. I am not convinced that the scheme will meet the Minister's aspiration for generous financial support for families if the worst should happen. The career expectations of junior NCOs may be to reach warrant officer rank, or even to get a commission and become a captain or major. They may marry on the basis of being young men with prospects. But that career would be stopped dead by a severe injury, along with all of the expectations. It may not be realistic to have any significant civilian career after an injury. Yes, there would be a lump sum payment, but that might be needed to cope with the results of the injuries and it would not cover lost earnings. That would not be a major problem for me if I was disabled as a result of an exercise, because I would receive a major's pension. If one happened to be injured as a "one star" and could no longer work, it would be more like early retirement.
	The Minister will point out that the same problem arises in civvy street. But severe disablements in civilian life are unusual and often someone has been negligent and is liable to pay compensation. Many noble Lords have skilfully referred to the unlimited commitment of our Armed Forces. But the Armed Forces are the only people to engage in a mission where it is probable that some will be killed or seriously injured. No other group in our society would do that. However, it is possible for a junior serviceman to have his career prospects taken into consideration if he claims compensation for negligence. But I think that it is highly undesirable for junior servicemen to claim compensation for negligence by their superiors during operations, or even on exercise.
	However, we live in an increasingly litigious society. In negligence compensation cases career expectations can be taken into consideration. I accept that it is not easy for the service authorities to make an objective forecast. However, unless a serviceman makes a serious mistake—that is, a career limiting move—he will normally meet the expectations. Often, performance improves with increasing maturity. Casualties often arise on operations through pure bad luck, but also as a result—I put it as delicately as possible—of a poor tactical decision.
	I shall give your Lordships an imaginary example, because the real one that I know from Operation TELIC is toe-curlingly and embarrassingly stupid. Fortunately, the price was never paid, but taking that risk without complaint or question is part of the unlimited liability that many noble Lords have talked about. Supposing a commander is leading a patrol in a dangerous operational area and he returns to base by the same route six times through possible ambush locations. Due to weak leadership or possible lack of moral courage, the commander follows the same route back to base yet again. Tragically, the patrol is ambushed and a junior soldier is severely disabled. That could lead to the junior soldier claiming compensation for negligence; and it could easily succeed, as no reasonably competent, responsible officer would have taken such a course of action and made such a tactical error. I believe that it is highly undesirable for junior servicemen to claim compensation; however, he would have to do that to secure the financial position that he would have enjoyed but for his commanders' error.
	My final two points relate to Territorial Army pensions for non-mobilised service. When I joined the TA from school I did not realise that TA service attracted any pay at all and my first girocheque was very welcome, because it was several times the recommended pocket money for the term. I have never regarded my TA service as part-time work—in other words, moonlighting. I regarded it as being on Her Majesty's service. I felt that that made it acceptable for my performance on Monday mornings to be a little below par and I am sure that my employer would have accepted that view if I had put it to him.
	It has been suggested, as a result of recent case law, that members of the TA are entitled to some form of retrospective pension. I do not accept that view because it was not a deal to which I agreed when I started my TA service. Therefore, I have resisted all suggestions to pursue the matter in your Lordships' House, and I hope that the Minister draws some comfort from that.
	However, I believe that the Minister should examine the possibility of some form of pension scheme for TA personnel. The TA has significant turnover and any scheme need not click in until, say, one has been certified as having served efficiently for 12 years. It needs to be remembered that TA personnel forgo significant weekend overtime earnings, and few TA personnel are immediately usable on operations before their third year of service. The training bounty helps retention, especially vis-à-vis the families, but a pension could be a very useful complement.

Baroness Dean of Thornton-le-Fylde: My Lords, this is a very important Bill. It is a small Bill, particularly compared with the Pensions Bill, which we debated at Second Reading earlier and which is about 100 times longer than this one. But I suggest that this Bill is as important as the earlier one.
	An analysis of this debate could result in the conclusion that it is an absolutely awful Bill, that our Armed Forces are being treated like Aunt Sallys and that we are not doing enough for them. I want to pick out the areas where I believe that the Bill is deficient, but, in overall terms, I welcome it. I do so having talked to Armed Forces personnel. There is much to be welcomed within it.
	It is a Bill that has been a long time in coming. I remember, nearly seven years ago, being asked if I would agree to be chairman of the Armed Forces Pay Review Body and being briefed that one issue that we would be facing, probably within a year or 18 months, was the new Armed Forces pensions Bill which the Government were to bring forward. The present Government have inherited it from the previous one. I remember going to see the then Secretary of State, George Robertson, and asking him directly when we could expect to see the Bill. He said, "We're not sure", and he would not pin himself down with regard to the timing. I started to hear alarm bells ring then.
	However, as time has gone on, this Bill has started to look better and better when compared with what is happening with regard to pensions generally in this country. Unfortunately, we are where we are now. In addition, this is an unfortunate year. I shall not ask my noble friend the Minister to comment, but this is not a particularly affluent year in terms of resources for the MoD. Therefore, perhaps the timing could have been a little better; nevertheless, the Bill is here now and I think that it would be sad if it did not, with some changes, receive a fair wind from this House.
	The noble and gallant Lord, Lord Craig, who understandably is not in his place at present because he is attending the Constitution Committee, and the noble Lord, Lord Hodgson, talked about Armed Forces personnel not knowing much about their pensions and they questioned the line of communications.
	The noble and gallant Lord, Lord Craig, referred to his experience as a young man in the services. He said that, with only 100-odd replies to the consultation exercise, things have not changed much. I suggest that they have changed. Each year the Armed Forces Pay Review Body meets about 3,000 personnel. I can tell noble Lords that, over the past three years in the series of meetings that we have had, pensions have been an ongoing issue for our Armed Forces personnel.
	As time has gone by, that interest has increased, and the reason for that is twofold. I guess that it is because of what has been happening in the private sector and the attendant newspaper coverage but also because the Armed Forces at MoD level have been conducting a communications exercise. The problem with that is that our Armed Forces are almost on a conveyor belt—they are never in one place long enough to reach all the people in one group.
	Nevertheless, the Armed Forces have been conducting a communications exercise and pensions have been one of the issues raised. One question that has been asked—it is dealt with in the Bill—is: why do officers accrue their pensions at a different rate compared with other ranks? Certainly, other ranks take something like 37 years before becoming eligible for a pension as opposed to officers, who become eligible after 34 years. The Bill deals with that matter and it should be welcomed. I can tell noble Lords that, having talked to personnel, they certainly welcome it.
	The scheme is a final salary scheme. If this Bill did not go through now, I am unsure whether we would be faced with a final salary scheme in three or five years' time, considering the way in which matters are changing in the pensions area. Therefore, I would welcome a statement from the Minister about this being a final salary scheme. Indeed, the noble Lord, Lord Hodgson, made reference to defined contributions. The first part of the Explanatory Notes states that there are no plans at present to go to defined contributions. I would like some more beef on that statement. That would be most helpful.
	The move from one-and-a-half times to four times pensionable pay in the new scheme has to be welcomed. It is comparable with what takes place in the private sector. The widow's pension changing from 50 per cent to 62.5 per cent also has to be welcomed. That is indeed a welcome move.
	I was very puzzled as to why there was so little detail on the face of the Bill. The Minister referred to that in his introduction and I know that it is normal in many public sector pension schemes—perhaps all of them. I understand that. If such details are not to be included in the Bill, we need some assurances in a number of areas that will provide our Armed Forces with a kind of protective coat in relation to the pension scheme. In other pension schemes, where everything is encompassed in the rules of the scheme, members can have a say.
	A welcome addition to the Bill would be a reference to the Armed Forces Pay Review Body taking over the monitoring of the scheme. I have declared my former interest—I am no longer chairman—but the Armed Forces Pay Review Body is an independent body, as the Government have found out to their expense from time to time. I know that my colleagues and the current chairman, Professor Greenway, will ensure that that work is carried out thoroughly. It would be good to have reference to that in the legislation.
	I would also ask my noble friend to assure me that the reviews that the Government have conducted and the recommendations to the MoD are put in the public domain, just as is the case with the annual report of the Armed Forces Pay Review Body. There is no reference to that at the moment. I believe that that is essential because it would mean that Armed Forces personnel would have access to it and be able to raise issues with the Armed Forces Pay Review Body.
	The burden of proof has been mentioned by noble Lords and I understand that. We need to debate that because it is not as straightforward in some areas as perhaps we think, but I welcome the fact that the issue has been raised.
	I am very concerned about two other areas, one of which has not been mentioned—the transitional issues. I am not talking about the legacy issues; I am talking about the transitional issues that will arise in April next year when new recruits go straight into the new scheme and current serving personnel join not later than April 2007, should they so choose.
	My friend, the noble Baroness, Lady Strange, mentioned the briefing meeting that was held at the MoD. We are indeed grateful to the Minister and to his civil servants for being so open with us and giving us an absolutely first-class presentation. That was very welcome indeed. I also thank the Minister for sending me yesterday a three-page letter dealing with the transitional issue. I am sure that he will not be too surprised to know that it does not answer in full the questions that I intend to ask during debates on the Bill.
	Let us imagine a situation such as Iraq. Next year we shall have personnel in Iraq—I doubt we shall be out by next year. Suppose in June next year new recruits are working in operations on the ground and someone who has just joined the services is killed. His widow and his family would receive four times the pensionable pay and, if he is not legally married, his unmarried partner would also receive recognition in respect of widow's pay. However, if he or she had been in the services under the current scheme, the amount would be one-and-a-half times pensionable pay and, if he or she is not married, the unmarried partner would not be recognised.
	As regards the pension, the spouse pensioner of a new recruit will receive 62.5 per cent whereas, currently, a widow receives 50 per cent. It might be that a new recruit who gets killed has got two months' service and another person who gets killed in the same action might have 15 years' service. That situation is absolutely untenable. This is a priority issue for the Bill. It is a transitional situation, which probably needs a transitional arrangement. I am not suggesting that the Bill is changed indefinitely or that there is any extra cost to the base cost, but we need to deal with that issue because it sends out a very bad message for serving personnel.
	Last weekend we saw the D-day commemorations. In departing from the issue before us today, I wish to pay tribute to the BBC, which for a whole week was at its best. I am not referring to the English language; but the BBC talked in many kinds of languages. During last week, the BBC broadcast something for everyone in the United Kingdom; that is, young people who do not know very much about D-day, elderly people, and all other age groups. It did a marvellous job.
	On Sunday, if we had asked the people of Britain if they thought that we should triple what we give our Armed Forces, there would have been a unanimous "Yes" vote. A referendum would have obtained a 99.9 per cent "Yes" return. However, it brought home the issue to which the noble Viscount, Lord Slim, and the noble Baroness, Lady Strange, referred. It is a diminishing issue, but it is still an issue of unfairness; that is, the war widows' pensions pre-1973.
	When we were discussing the 1995 pensions Bill—not Armed Forces pensions—I sat on the other side of the House because we were in opposition. I was number two to my noble friend Lady Hollis. The Opposition were supporting the Conservative government of the day by refusing to lift the war widows' pensions. The noble Baroness, Lady Strange, courageously put forward an amendment. I am not suggesting that I was courageous, but I risked being thrown off the Bill team. I thought, "Technically, the government of the day are right and the Opposition are right. But actually, in fairness terms, they are wrong". I suggest that that is still the case.
	Technically, it may be right to do nothing. Retrospection is very difficult in a whole range of areas. Widows' pensions pre-1973 is an area where we have to say that fairness and morality must come first, rather than give technical reasons about why they do not. Such considerations would not cost a lot of money. That may sound mercenary, but the blunt fact is that they would not. They are also a diminishing issue as regards cost. Would the Government please consider what they can do about this small number of people?
	When I saw those veterans on the television and heard them talking on the radio, I was absolutely convinced. I had all the facts before me and I was already convinced, but that moved me to think that we will not see the likes of those people again in such numbers, many of whom are more than 80 years-old.
	As I said, this Bill is a long time coming. It is not often that we get the chance to discuss Armed Forces' pensions, so we must try to get it as right as we can, although it will not be perfect. This is important for our Armed Forces, not just for the personnel serving but for their families. When the Armed Forces serve in operations, it is important for them to know that their families are well looked after. This is one aspect of their commitment to the nation. Accommodation for families and welfare packages are important. I suggest that pension provision is equally important.

Lord Freyberg: My Lords, I should like to go back to one of the legacy issues mentioned by my noble and gallant friend Lord Craig of Radley, which currently is not in the Bill. But it is my belief that it should be. It is the result of a loophole which began to be closed more than 25 years ago, but which has subsequently left a very vulnerable group in its wake; that is, service widows who receive some, or in many cases no, pension regardless of how long their husbands served. I refer to the service widows of post-retirement marriages.
	The women who receive no pension at all are widows who married their husbands after they retired from the services and whose retirement occurred prior to 6 April 1978. Servicemen who served through 6 April 1978 and married post-retirement are able to hand on only that part of their pension earned after that date. Servicemen who served solely after 6 April 1978 and married post-retirement are able to hand the usual 50 per cent of their pension on to their spouses. I am of course aware that there is a far smaller number of widowers in these groups, and they need to be included in the whole argument.
	It is particularly urgent for such an inadequacy in pension provision to be dealt with here and now because most of those affected are old, infirm and living in unfairly straitened conditions. It will be too late to help these many women and a few men once they have died, and inevitably their numbers are dwindling. Subsequent governments have rightly ensured that future generations will not be afflicted by the same problem, although I would add that this anomaly will not be completely eradicated until 2015. The worst affected are of course the widows of those who served pre-1978. We should therefore take some responsibility for those who were penalised through no fault of their own and actually discriminated against because the scheme implemented in the past made no allowances for the uniqueness of their husbands' employment.
	This Government certainly recognise that our Armed Forces are special in the circumstances in which they work. They acknowledge that these should affect future pension provision. Yet when it comes to looking at legacy issues, the Government mysteriously choose to ignore the uniqueness of service conditions and to assume that lumping the armed services together with other public services was equitable at the time; for example, when the provision for pensions for post-retirement marriages was laid down. Yet that was not the case at all.
	Yes, the Social Security Act 1975 did lead to an improvement in pension provision for all public service workers. But even at the time the Armed Forces were given a raw deal because of their enforced early retirement, which made a post-retirement marriage so much more likely than for other professions in the Act. While the retirement age for the vast majority of those in the public service is 65 for men and was until recently 60 for women, the majority of service people have to retire at or below the age of 40, while even for officers the normal retirement age is 55. However, fewer than 15 per cent serve to that age. These and many other factors such as long overseas postings, which reduced the likelihood of meeting a suitable partner, have applied and apply only to the Armed Forces. It is only reasonable for the Government to recognise that these differences were inadequately addressed. Our Armed Forces deserve nothing less.
	One of the areas that is a mystery to those of us who have studied this problem is how much it would cost to give provision to the widows stranded with no pension. Government Ministers in 2002 and 2004 have stated that it would cost £50 million to provide for widows of post-retirement marriages, and between £300 and £500 million to extend the post-retirement marriage concession to survivors of members of all public service occupational schemes.
	As I have explained, the conditions that make pensions for armed service post-retirement marriages so urgent do not exist outside the armed services, so it should be possible to ring-fence the provision. Moreover, how accurate is the estimate of £50 million? In a Written Answer in another place on 22 March 2000, the Minister of State for the Armed Forces at the time, Mr John Spellar, informed Gordon Marsden MP that:
	"No records are kept of the numbers of spouses of deceased service personnel who are not eligible for a Forces Family pension . . . it is also impossible to calculate the notional total value of pensions which might be paid to the spouses of deceased ex-service personnel who at present do not receive them".—[Official Report, Commons, 22/3/00; col. 567W.]
	Is it not possible that the Government have overestimated the cost?
	Until now, the MoD has refused even to contemplate looking at the plight of those affected. People who write in to express their concerns are sent virtually identical letters to those sent out in 1981. This week, as the noble Lord, Lord Morris of Manchester, my noble friend Lady Strange and the noble Baroness, Lady Dean, have already mentioned, we have been honouring the bravery of those men who attacked the beaches of Normandy 60 years ago to secure this country's continued freedom and democracy. And yet it is quite ironic that it is the post-retirement widows of such men who are more affected by this anomaly than any other.
	In conclusion, I should like to reiterate my conviction that the 1978 legislation was particularly unsatisfactory for those serving in the Armed Forces. If the Armed Forces' service conditions were the same as those for other public services, I would respect the Government's position. However, they are not and never have been. That is why the Government should act now to introduce a modicum of support to those whose spouses depended on the Government for equitable treatment, which has so far been denied.

Lord Redesdale: My Lords, this has been an excellent Second Reading debate, which rarely happens in this House. I was told when I joined the House that Second Reading was the time when you flagged up the issues over which you were going to give the Government a hard time. Your Lordships have certainly put up many flags today.
	We welcome the Bill and the fact that the Minister will move that it should be dealt with in Grand Committee at the next stage. We have no difficulty with that; we believe that it will be a good forum for the Bill. However, given the number of issues that have been raised, I should warn the Government that although we cannot vote at the next stage unless the Government take a slightly more conciliatory attitude than they did in the Commons and some movement is achieved, the Bill may have a much stormier passage in its later stages.
	Like almost all noble Lords and almost everyone in the country, I am not an expert on pensions. I do as much as I can to avoid reading about pensions or any issues related to them. However, one aspect of the Bill caused me immediate concern when I read it. As with most Bills, I turned to the financial effects section in the Explanatory Notes, which shows who will be paying the bill, and noticed the strange and strangely worrying line that,
	"The new Armed Forces Pension Scheme is designed to be cost-neutral in comparison with the current scheme".
	This causes me to worry because the Minister, having read through the many amendments brought forward in another place, referred to the benefits that the Bill will bring about. I know that there are alterations in the very nature of the scheme but, as with everything, if there are winners there are bound to be some losers. We understand that.
	The noble Baroness, Lady Dean, said that in comparison to other forms of pension schemes the one in the Bill could be seen as far better than those in the private sector. I agree with her. One of the reasons we welcome the Bill is that it will give a degree of confidence to those in the Armed Forces. However, it also perhaps shows up the state of pensions outside such schemes. Indeed, the noble Baroness, Lady Strange, said that some widows might be better off under this scheme.
	However, a great number of problems have been raised, many to do with the very nature of this unusual pension scheme. The early retirement date of soldiers is a factor in the job. One of the extreme problems that is taking effect within the services themselves is that whereas in the past if you served your term with the Army you were almost guaranteed a post outside of comparable pay and status, this now is often not the case. I have spoken to a number of army officers and non-commissioned officers who are considering leaving the Army early because their skills within the Army are non-transferable. Therefore, having considered their pension and job prospects, they have decided to leave the Army far earlier than they would want to in order to enter the job market. This is affecting some of the best talents within the Army.
	Army pensions also have a different status because of the nature of the job, and that is being looked at. This is one of the few jobs in which the participants put themselves in the way of danger as part of their job.
	I shall not go into great depth into each of the issues raised because I am sure we will be debating them for many an hour in Committee, but I plan to touch on them. The noble Lord, Lord Morris of Manchester, raised the issue of burden of proof, which I find iniquitous. The noble Lord, Lord Morris, has been a great advocate and champion of the Royal British Legion, and we should all recognise the work that the legion has undertaken.
	One of the issues concerning burden of proof that the noble Lord did not raise is of great concern to me, with a sceptical eye from the outside. Burden of proof could be seen as a form of means-testing. There would be cost implications for widows, who have to deal with so many issues in a time of stress, if they had to establish the burden of proof. I worry about that, because it might deter many from embarking on claims.
	The alternative is for the Royal British Legion to take up those cases; however, there will be great financial strain on the Royal British Legion if the number of cases increases and it has to take on the burden of proof. The situation has changed from that which applied earlier, because the MoD used to have to bear the costs of the burden of proof system.
	Non-attributable pensions have been mentioned. Another issue which has exercised many is that of post-retirement marriages. That is an unfortunate situation, as many noble Lords indicated. It was particularly well put by the noble Baroness, Lady Strange. We tend to look at the technical details, but the MoD will save money only if the widows do not remarry. It is almost a form of social engineering. I know that it is a trend for many people in later life not to remarry but simply enter into relationships, but for those who find it important—and I think marriage is important—to be denied that possibility because of financial consequences seems particularly unfortunate.
	The Minister raised the rights of same-sex partners, which shows that the scheme is moving forward. That is a welcome contribution, considering the many debates we have had over the years about the nature of relationships within the Armed Forces. I believe that the relevant provision will be put in place by the Civil Partnership Bill, and we welcome that.
	We would like to look at full career pensions. I very much hope that at a later stage we can explore whether the situation can be improved.
	As with many of the Bills that come before us, many of the provisions will be set up by secondary legislation. One issue that I hope will be strengthened on the face of the Bill, although I know that it is affected by secondary legislation, is the provision of medical expenses from one place to the other. At present, if the NHS does not provide certain medical expenses in one area, they are not met by the MoD. It is seen as an unfortunate aspect of the NHS.
	The noble Earl, Lord Attlee, referred to the question of secondary legislation and said that we should move to the affirmative rather than the negative resolution procedure. I cannot count the number of debates I have had over whether secondary legislation should be affirmative or negative. I remember a particular debate when the Law Lords got involved, when I moved the amendment. The situation was so difficult that I lost the legal aspects of the argument and found it difficult to sum up. However, it is important for noble Lords to consider carefully whether secondary legislation should be allowed to do all the work or whether certain aspects should be mentioned in the Bill itself.
	I mention that matter because of recent events. On Tuesday night I called a Division in this House on a Motion of regret on the Licensing Bill. It was a shot in the dark—it was not an important Division, as all noble Lords who were there knew. But it highlighted the fact that it is almost impossible to alter secondary legislation. The noble Lord, Lord McIntosh, when summing up certain aspects of secondary legislation said, "Ah well, it is unfortunate that because it's not in primary legislation, we cannot deal with it in secondary legislation". I give fair warning that we shall push for certain aspects that would be considered areas of secondary legislation to be mentioned in the Bill itself.
	Finally, I turn to the issue of deterioration of disabilities. The MoD made some conciliatory noises at an earlier stage that it would reconsider the acceptance of ongoing review rather than factoring average or standard deterioration. That is an important point, especially with the ongoing nature of medical disabilities. I know that amputations have very different effects on different cases and to call them average would be almost impossible. In addition, although the Minister will say that the case of Gulf War syndrome is not applicable because the MoD does not accept it, if it were ever accepted in future it would have to be reviewed on an ongoing basis.
	I end with a question, which was highlighted by the noble Baroness, Lady Dean. It is one of those questions to which I did not know the answer; in debate, one should pick up those points and ask the Minister. Paragraph 17 of the Explanatory Notes says:
	"There are no plans at present to introduce a defined contributions scheme".
	The Minister will say that because there are no plans at present he cannot comment but, if such a scheme were brought in, could it be done through secondary legislation or would it need primary legislation?

Lord Astor of Hever: My Lords, I declare an interest as President of the Earl Haig branch, and the Kent branch of the Royal British Legion. Also, as a former Regular Army officer, I was awarded a war disablement pension for service-attributed hearing loss in the form of a gratuity payment.
	Our country takes great pride in its Armed Forces. As other noble Lords have said, that was very evident last weekend with enormous public support for, and interest in, the D-Day commemoration. I congratulate the Normandy Veterans Association, the Royal British Legion, the MoD and 102 Logistic Brigade on their outstanding organisation. Having spent most of the weekend in front of the television, I join the noble Baroness, Lady Dean, in complimenting the BBC.
	We owe the people of our Armed Forces a debt of honour. So far as that debt can be met in monetary terms, Parliament must make that possible. The Armed Forces are a special case. They are expected to fight, and sometimes to die, for their country. It is vital that they serve confident in the knowledge that they will receive a pension that is up with the very best of modern good practice pension conditions and, should anything happen to them, that their families will be provided for.
	This is essentially an enabling Bill. It is indeed the barest of enabling Bills and little more. It includes some minor specific provisions. The main focus of what I say will be on mainstream points that the Bill should address but which, as the text stands at present, it avoids.
	First, the Bill says nothing about the particulars of the schemes that it will enable the Secretary of State to establish. The noble and gallant Lord, Lord Craig, pointed out the need to reassure the Armed Forces by entrenching key benchmarks about the new schemes on the face of the Bill. We support that. We cannot sign a blank cheque and give the Government powers to do something not adequately defined.
	Secondly, although the Bill includes the reserves within its Long Title, it does less than it could, and should, for those who serve in the reserves. That is a service that is willingly given but which disturbs personal financial planning. My noble friend Lord Attlee gave the example of forgoing weekend earnings. The House has given considerable time today to debating, in the Pensions Bill, what can best be done to help people generally to save for their retirement in a secure manner. I congratulate my noble friend Lord Hodgson on his stamina in speaking in both debates. If what the Government are doing in that Bill is right, they should specifically recognise and protect the reserves in this Bill. In Committee, we shall certainly propose the inclusion of specific enabling powers for the Secretary of State to protect the personal financial planning of reserves.
	Another issue that is seemingly omitted is the matter of effective oversight of the working of both the pension and compensation schemes to be set up under the Bill. The assignment of responsibilities to the AFPRB is a step in the right direction but the noble and gallant Lord, Lord Craig, questioned, rightly in our view, whether it goes far enough. We believe that it does not and we will return to this in Committee. We agree with the noble and gallant Lord and the noble Baroness, Lady Dean, that the AFPRB's involvement should be on the face of the Bill. Unlike in other pension schemes, the interests of participants are not represented by trustees, nor are they, or can they, be represented by trade unions. As a result, they look to us as parliamentarians to protect their interests.
	The legacy issues, which will still remain in effect for so many beneficiaries, have been raised by many noble Lords. The noble Viscount, Lord Slim, highlighted the widows who get only one third of the pension. My noble friend Lord Hodgson and the noble Baroness, Lady Strange, mentioned the pension problems faced by many widows. The Royal British Legion, the Forces Pension Society and the War Widows Association of Great Britain—to all of which I am grateful for the mass of briefing that I have received on the Bill—have pointed out the demonstrable unfairness that no attempt has been made to correct past injustices, leaving many of today's pensioners severely disadvantaged. These have accumulated over time, unremedied and often unrecognised. We need to prevent such a situation from recurring and to be able to remedy such injustices piecemeal as opportunity offers.
	The noble Baroness, Lady Dean, who until recently was such a vigorous and effective chairman of the AFPRB, largely welcomed the Bill. There are aspects of the Bill that we also welcome. Like the noble Baroness, we welcome the equal treatment given to officers and other ranks. We particularly welcome the increase in death-in-service benefits from 1.5 to 4 times pay and the improvements to dependents' benefits, which will come much closer to good practice.
	I turn to two specific issues that are addressed in detail in the Bill and its schedules. Like my noble friend Lord Hodgson, we accept the Government's view that the future of the Royal Patriotic Fund should be settled by primary legislation and that this Bill is an appropriate route to that.
	The second issue is the appeals procedure. Schedule 1 has a provision that alters the appeals procedure that has been in place for more than 60 years. It has stood the test of time and provides an efficient, accessible and cheap method for fairly determining appeals on time. What is proposed is an added layer of complexity which is likely to cause delay and leave claimants aggrieved that they have not had the legal issue determined by a High Court judge. We see no reason to change a well established procedure. The greater mischief is that the Bill makes no provision for the claimant's legal representation to be met.
	The noble Baroness, Lady Strange—the wonderfully proactive president of the War Widows' Association—raised some of the concerns and problems of the war widows. The War Widows' Association has also raised with me the point that pensions and the GISW should be indexed to the retail prices index and not any lower index. That is particularly important for war widows, many of whom are widowed with young children and remain widowed for a very long time. The impact of low indexation is particularly punitive for them. We look to the Minister to give a firm assurance on that.
	At Committee stage we will be confronting the problem faced by existing widows who are not benefiting from the Bill, extending to widows with non-attributable pensions the same level as that received by those with attributable pensions. Thus the MoD is about to create wilfully and unnecessarily a new group of disadvantaged people. Quite rightly the MoD has conceded the principle that widows' pensions for life is an appropriate policy. It introduced it in 2000 for attributable service widows and included retrospectively existing widows—the amendment of the noble Baroness, Lady Strange.
	The noble Baroness, Lady Strange, and the noble Lords, Lord Freyberg and Lord Redesdale, rightly highlighted the problems of post-retirement marriages. My noble friend Lord Attlee raised the compensation problems faced by junior NCOs and servicemen. The noble Lord, Lord Morris of Manchester, highlighted very eloquently the problems raised by the proposal to change the burden of proof for compensation from "reasonable doubt" to "balance of probabilities".
	As the noble Lord said, the Commons Defence Committee was sceptical of a change that appears to make the Government's job appear easier and the claimant's harder. As my noble friend Lady Park pointed out, the committee also said that because of the "special risks" those personnel undertake, the onus of proof should remain with the MoD. That has been law for 60 years and for very good reason. It has hitherto been government policy to ensure that no valid claim is likely to be rejected. We will be very strongly supporting the noble Lord, Lord Morris, on this issue at Committee stage.
	The noble Lord, Lord Redesdale, mentioned the five-year time limit for claims under the compensation scheme. My honourable friend the Member for Ruislip Northwood pointed out at Second Reading in the other place that radiological illnesses often take a number of years to develop; similarly with cancers and various pathological conditions arising from severe trauma.
	The brief given to those conducting this review was in important respects the wrong one. They were told to come up with something that would be cost neutral, not something that corrects past shortcomings and sets a fair structure for the future. There are indeed some improvements and I have welcomed those, but essentially money is to be saved by particularly deferring payments from 60 to 65. There is one winner—the Treasury. The Royal British Legion pointed out that the majority of ex-service people will be negatively affected. The costs of the present scheme show up in the defence budget at more than £4.5 billion a year—one-eighth or more of the total defence budget. No one can grudge those payments as such but there must be questions whether better benefits could be provided if the systems were organised in line with best modern practice. The Bill must provide a mechanism for getting these things right for the future. It is in that spirit that I look forward to working constructively to improve the Bill in Grand Committee and thereafter.

Lord Bach: My Lords, we have had a very good debate. As other noble Lords have mentioned, it has been extremely well timed, occurring in the week of the celebration of the 60th anniversary of D-Day. That event should quite rightly affect us all in what we have had to say.
	These are proposals of very major importance to the Armed Forces and to the country which they serve. I should like to start by saying how grateful I am for the contributions from all noble Lords. The noble Lord, Lord Redesdale, talked about flags being raised. Certainly, a number of them have been raised on a rather wide range of topics, some of which are perhaps more relevant to the Bill than others. However, I look forward to seeing how they develop in the weeks ahead.
	The debate demonstrated very well the knowledge and concern that this House traditionally has to uphold the interests of the Armed Services. I do not believe there is fundamental disagreement about the basic objects of the Bill. The arrangements that we put in place for pensions and compensation should be fairer and more responsive to the concerns of serving personnel and should be properly in line with wider good practice. My view is that the plans that we have debated today will achieve that.
	I shall try to address as many of the points that have been raised in the debate as I can. Some I shall deliberately not reply to because of time constraints and because I believe they concerned topics that will emerge when amendments are tabled. The noble Earl, Lord Attlee, made a number of very interesting points from his great experience as someone who serves in the Armed Forces as a reserve. I believe—I think that he said this in effect—that many of his points may be dealt with at a later stage.
	In the same spirit I shall not deal tonight with the points that my noble friend Lady Dean made about transitional issues, if she will forgive me. It would take too much time and I am sure that they will emerge at a later stage. However, I should like to try to get some points out of the way, if I may. The first is one that was made by my noble friend Lady Dean and the noble Lord, Lord Redesdale, regarding what assurance I can give that the scheme will remain a defined benefit scheme. Of course, I welcome the recognition from around the House of the value of a defined benefit scheme. As Ministers we were aware of the broader trends in the economy when we decided that we should go down that route. We are confident that that was the right decision and noble Lords' comments backed us up in that. The scheme provides the high level of assurance that Armed Forces personnel deserve. Of course, we cannot guarantee that future generations will maintain that position for all time. What government can ever do that? A government cannot bind their successors. However, we do not consider that a defined contribution scheme would be the right course for the new scheme. I think that we have made that clear.
	I turn to a smaller but important point made by the noble Lord, Lord Astor. He wanted to know about the guaranteed income stream in the Armed Forces scheme. That income stream will be uprated by the retail prices index.
	The noble Baroness, Lady Park of Monmouth, asked me a direct question about the incorrect taxation of ex-service personnel. We recognise the error, which dated back to before World War II. We have received all the files at risk and identified all those affected. Refunds have been made, including simple interest. At the end of last year, we announced a generous compensation package to cover the effects of inflation on the refunds, and the first payments have now been made. The process should be completed before the end of the year. I am sure that the noble Baroness will check with me to see that it has.
	Some issues were raised that go under the heading of "legacy issues". The siren calls for dealing with legacy issues were made with incredible skill and persuasiveness today. Of course, those who make them have lots of experience in making them. Any government must be prepared to listen carefully and consider such calls, but they must also sometimes steel themselves against giving way too easily to what, on the face of it, sound like extraordinarily attractive arguments. One overrides the principle of retrospection only in very extreme cases, if at all. The noble Lord, Lord Astor of Hever, would say that, if he were standing here, as would the noble Lord, Lord Redesdale. Governments of all parties and shades have stuck with the view that to change the law retrospectively is, for the most part, an error.
	I have no doubt that some of the issues will arise again at later stages, and I hope to deal with them as sympathetically as I can. However, I do not want to give the House any impression that I am in a position to offer any alleviation of the real issues that have been raised.
	My noble friend Lord Morris of Manchester made a point about non-attributable widow's pensions for life. I must point again that one of the great benefits of the Bill is the fact that we have taken forward what the noble Baroness, Lady Strange, succeeded in doing in what I can only describe as a tour de force a few years ago, effectively changing the position for widows. Under the Bill, widows will be able to keep their pension for life on remarriage, whether or not death is due to service. I am not sure that that change has got the praise that it deserves.
	The rules on remarriage were common across public service pension schemes. The changes made in 2000 were exceptional, for a special group of war widows. To grant pensions for life in the current pension scheme to existing non-attributable widows is not affordable and would be in breach of the policy of successive governments on retrospection.

Lord Craig of Radley: My Lords, the Minister says that it is not affordable. Can he give the House any indication of the sums involved?

Lord Bach: My Lords, I am about to do so, in general terms. The Government believe that it is not possible to distinguish between the widows of doctors, policemen or firemen whose spouse dies from natural causes not due to their employment. The financial implications of making a change throughout the whole public service would be very high, running, we believe, to several billion pounds. I mention the figure of £3 billion—in very broad terms.
	A plea was made for the pre-1973 widows, who receive a one third-rate pension. Effective pleas were made by my noble friend Lord Morris of Manchester and the noble Viscount, Lord Slim. Half-rate widows' pensions were introduced without retrospection to most public sector pension schemes in 1973. To uprate the provisions of this group of widows would be unaffordable and in breach of the policy of successive governments that there should not be retrospection.
	Those serving in the Armed Forces when half-rate widows' pensions were introduced were given an option then to buy back the extra pension provision to increase their widows' pension to half-rate. I do not know how easy that was for them to do. In the gloom of what I have had to say, perhaps I may cast a little light: we are currently investigating whether it might be possible to offer a buy-in option for those now retired to improve widows' benefits from one third to a half rate. No doubt, we will discuss that again.
	On legacy issues generally, I fully accept that former service personnel and their families feel aggrieved that they have not always benefited from subsequent improvements to pension provisions, but that must not delay or deter us from bringing about improvements for future pensioners. I have taken on board the points made by the noble Lord, Lord Freyberg, and others about post-retirement widows' pensions. I have no doubt that we will return to the issue.
	Perhaps I may make a couple of remarks on what the noble Lord, Lord Hodgson, and others have said on a number of issues. Like the noble Lord, Lord Astor, I congratulate the noble Lord, Lord Hodgson, and my noble friend Lady Dean on having the perseverance—I know that the noble Lord, Lord Astor, meant to do that—to spend a whole day on pensions in this House. It is beyond the call of duty. I recognise their expertise in this sometimes arcane field.
	The noble Lord, Lord Hodgson, asked about those leaving mid-career and having to accept lower salaries with lower pensions. I recognise that there can still be career penalties for those leaving the Armed Forces before a full career. Obviously, that can affect later pension earning capacity. However, our resettlement work shows that the majority of servicemen and servicewomen leaving the Army mid-career get good, sustainable jobs, not least because of the skills training that they have had, most importantly the skill of having been a successful member of the Armed Forces. In many cases they choose to leave earlier than we in the Ministry of Defence would wish, but we are confident that the new early departure scheme, which gets more generous the later the departure, provides security for those entering a second career.
	The noble Lord, Lord Hodgson, and others made the point about communication. We do not underestimate the challenge that we face in ensuring that all servicemen and servicewomen, wherever they are serving are sufficiently informed about their options. As my noble friend Lady Dean mentioned, we have begun work on our communications exercise. We will build on the experience of those who introduced the new Civil Service pension scheme and our own exercises in relation to ethnic monitoring in the Armed Forces and pay legislation of 2000.

Lord Hodgson of Astley Abbotts: My Lords, perhaps I may intervene briefly. The noble Lord might like to look at Ministry of Defence Policy Paper 6, which has just been sent out to us all, on individual training and education in the Armed Forces. It does not mention pensions anywhere.

Lord Bach: My Lords, I am grateful to the noble Lord; he will understand that it is, of course, my bedside reading. The choice between pension schemes will be determined by individual circumstances. Service personnel will need to make a judgment; they will be given a window of opportunity. Accessible information about the new scheme will be made available in booklets, briefing material, road shows and on our websites. We will also target service personnel and their spouses through magazine articles. We are examining how we might best facilitate access to independent financial advice, but it must be independent, as the noble Lord will understand clearly, which makes life slightly difficult.
	I have heard the extremely powerful remarks of the noble and gallant Lord, Lord Craig, the noble Lords, Lord Hodgson and Lord Redesdale, and many others, about wanting to see more on the face of the Bill. We have looked carefully at that. We believe that it would be impractical. It is not possible to include principles in primary legislation without getting into considerable detail because the commitments would need to be legally clear. For example, a clause on the rate for dependants' benefits would need to cover accrual rates and the definition—and it is not an easy one—of pensionable pay, including arrangements for dynamisation.
	Many other public service schemes are drawn up on the basis of enabling primary legislation with rules in secondary legislation. It follows that if we saw that principle through, we should end up putting everything in the primary legislation that is in secondary legislation.
	I have to say that just for a moment I slightly resented the noble Lord's suggestion that the Ministry of Defence was hiding the fact that there is an abatement of pay each year because of pensions. I do not think that the Ministry of Defence have ever hidden that away. Many members of the Armed Forces know precisely how their pay is made up. It would certainly be possible for them to find out. There is no hiding away here. I am sure that is not what he meant.
	A powerful point about the Armed Forces Pay Review Body being mentioned on the face of the Bill was made by my noble friend Lady Dean and the noble and gallant Lord, Lord Craig. I am afraid that we disagree about that. We see no reason to include the role of the AFPRB in primary legislation. We understand that it has performed its role on pay with great ability—not least under the chairmanship of my noble friend—for many years without provision in primary legislation. If its role and remit were now to be placed in primary legislation, that would reduce the flexibility with which it could be used in the years ahead.
	One reason we do not want to put too much detail on the face of the Bill is because every time we need to change it in any regard we have to move primary legislation in this House. That is a problem. I am sure we shall return to the issue in due course.
	We believe that there is a special status for the Armed Forces. We think the Bill shows that in two ways. In overall design terms, this measure is well up to good practice outside. I remind the House that we commissioned independent reviews before finalising our designs which confirm that, and we have included featured designs specifically to address the special demands of hazards of a service life. These include the exceptionally early age for a full pension, retention of a defined benefit scheme, still generous benefits for those who have to leave in mid-career, valuable lump sums and income paid to those injured as a result of service—with improved focus in this Bill on the more severely disabled—and the major improvements to dependants' benefits reflecting the particular risks of military service. So we believe that the special status of current and ex-servicemen is recognised in the Bill.
	I conclude with the standard of proof. I know this is an important issue for a number of noble Lords. Balance of probabilities is used widely elsewhere, including in the civil courts. My noble friend said that in our legal system there were two standards of proof—beyond reasonable doubt and on a balance of probabilities; one for the criminal system that we enjoy and one for the civil system that we enjoy. I have to remind him, as he knows very well, that the balance of probabilities standard is adopted in civil cases in this country. The issues we are talking about are civil rather than criminal in nature. That is one reason we believe that this change, which was the law for many years, is the right one to continue with.
	We have listened carefully—we will continue to do so—to the concerns of the Royal British Legion and others that a large number of claims will fail as a result, but we do not believe that to be right. We have explained carefully why we think that that is based on a misunderstanding. The basic issue for us is that we will ask claimants to offer evidence on why they think that a condition is more likely than not to have been linked to service. In today's world, that must be right. Many injuries arise at home in private social life. The department simply cannot have visibility of those.
	The responsibility to furnish evidence is not all one-way, however. As a department, we must disclose the medical and other service records that will help to reveal whether a condition has a history arising from service. We make it clear again that we recognise the seriousness of our role in that respect. We also accept that there have been errors in the past in medical records; we believe that that position has improved. If there is a lack of medical records in any such matters when they arise, it certainly will not do the department's case any good at all in the real world. I am confident that no claim would fail where there was reasonable evidence that disablement was due to service.
	I have spoken for quite long enough. We have a further opportunity to discuss the issues during the remaining stages of the Bill's passage. Believe it or not, I actually look forward to that. Some of the issues are complex and all are important. They raise strong emotions, touching as they do on the lives of a group of men and women to whom we, in this House and in the country generally, owe a very great responsibility. I have commended the principles behind the Bill to the House enough times already this afternoon. We believe that the schemes are good, so I commend the Bill to the House for a final time today.

Lord Astor of Hever: My Lords, before we conclude, I apologise to the noble Baroness, Lady Dean, for not being eagle-eyed enough to pick up the fact that she had spoken in both debates.
	On Question, Bill read a second time, and committed to a Grand Committee.

House adjourned at twenty-three minutes before seven o'clock.